Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
I just finished reading this article and it's scary.
"But we can't eat oil. A nation might have the financial means to buy energy or be blessed with energy resources within its borders, but if superbugs wipe out much of its cereal and other commodity crops and its livestock, its people will go hungry."
"Here's the problem with superbugs: you can't kill them with standard-issue antibiotics. They spread like wildfire through monoculture crops and livestock yards and kill with indiscriminate alacrity.
The only solution, poor as it is, is to kill every animal that might be infected--tens of millions or hundreds of millions in the case of African swine fever."
Ironically I have not directly had antibiotics for years other than in the food that I might be consuming!
Thanks
PS: My personal antibiotic is chicken noodle soup loaded with hot pepper. I will develop a vegetarian alternative with noodles.
Peak Oil Review: 15 April 2019
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2019-04-15/peak-oil-review-15-april-2019/
Quote of the Week
“Shale companies from Texas to North Dakota have been managing their wells to maximize short-term oil production. That has long-term consequences for the future of the American energy boom. By front-loading the wells to boost early oil output, many companies have been able to accelerate growth. But these newer wells peter out more quickly, so companies have to drill new ones sooner to sustain their production. In effect, frackers have jumped on a treadmill and ratcheted up the speed, becoming ever more dependent on new capital to keep oil production humming, even as Wall Street is becoming more skeptical of funding the industry.” Rebecca Elliot, The Wall Street Journal (4/8)
1. Oil and the Global Economy
Oil prices continued to creep up last week closing out at $71.55 in London and $63.89 in New York, making the sixth consecutive week of gains. If you have been watching your gas pumps lately, you have noted that regular is up 30 cents a gallon in the last month to average $2.83 in the US. In California, however, regular is just about $4 a gallon and is going for $4.62 in one county.
The now familiar situations in Venezuela and Iran have been joined by upheavals in Libya and Algeria as places where oil exports could fall substantially. On the bearish side is news that there may be a settlement to the US-China trade war and a new IMF forecast that cuts global growth for 2019 down by 0.2 percentage points to 3.3 percent. The IMF sums up the oil situation by saying: “Upside risks to [oil] prices in the short term include geopolitical events in the Middle East, civil unrest in Venezuela, a tougher US stance against Iran and Venezuela, and slower-than-expected US production growth. Downside risks include stronger-than-expected US production and noncompliance among OPEC and non-OPEC countries. Trade tensions and other risks to global growth can also further affect global activity and its prospects, in turn reducing oil demand.”
The Wall Street Journal ran a very significant story last week pointing out that shale oil drillers in the US have been managing their wells to maximize short-term production in a way that will have long-term consequences for future production. “By front-loading the wells to boost early oil output, many companies have been able to accelerate growth. But these newer wells peter out more quickly, so companies have to drill new ones.”
This paradigm is in contrast with what Exxon and Chevron plan to do in the Permian in the next few years. “You don’t try to grow production fast,” Chevron Chief Executive Mike Wirth said in a recent interview. “You really look at the entire life cycle of the asset.” The story notes that the growth of shale oil already has begun to slow. U.S. production fell slightly to 11.87 million b/d in January, from 11.96 million in December, after rising steadily for much of last year. The next few months should give us a good idea of whether forecasts of a 1.4 million b/d increase in US oil production this year have a chance of coming true.
The OPEC Production Cut: The future of the OPEC+ production cut is coming into question with the 32 percent increase in oil prices this year to circa $72 a barrel coupled with the expectation that less oil will be coming from Venezuela and Iran and possibly from Libya and Algeria. Even the likelihood that there will be a significant increase in US shale oil production this year is coming into question. The current OPEC+ agreement to cut 1.2 million b/d for six months expires at the end of June.
OPEC’s monthly oil market report which came out last week estimates that the cartel’s production in March was down to 30.2 million b/d, 534,000 b/d lower than in February. Last month was the cartel’s lowest production since February 2015. Saudi production was down by 324,000 b/d for the month to less than 10 million b/d. OPEC says that Venezuela’s production was down by 289,000 b/d during March although this number is at the high end of estimates as to what happened to Venezuelan output in March.
Moscow has never been enthusiastic about the current production agreement and has been slow to make cuts, citing technical reasons. In the last few weeks, there have been official hints that the production cut will end on June 30th. The Saudi energy minister said last week that it was premature to tell whether a consensus existed among OPEC and its allies to extend oil supply cuts, but a meeting next month would make the decision. The minister added that “I don’t think we will need (to do more) … the market is on its way toward balance. We have done a lot more than others.”
US policies targeting Iran and Venezuela have introduced a new level of uncertainty for OPEC as the producer group struggles to predict global supply and demand. Some Saudis are saying that OPEC will act after it sees what the Trump administration does about the waivers which currently allow some Iranian exports to its best customers.
US Shale Oil Production: The most important news of the week was Chevron’s purchase of Anadarko Petroleum for $33 billion. The combined company is set to become the leading operator in the Permian Basin. In recent years, small and midsize oil-and-gas companies such as Anadarko have performed poorly and are facing investor pressure to slow growth and deliver more profits and cash flow. Chevron’s move says the firm believes that large integrated companies can make a profit from whatever remains of the shale oil boom where smaller producers have failed.
The EIA remains optimistic about the future of US crude production which it now expects to increase by 1.43 million b/d in 2019 to average 12.39 million b/d. This is an increase from the EIA’s last forecast of a 1.35 million b/d increase this year.
There are several reasons to question the EIA’s forecasts. Last week, North Dakota reported production of 1.355 million b/d during February, down from 1.403 million in January. Bad weather this winter slowed fracking operations, and well completions were down to 59 in February from 113 in December and 92 in January. Fracking in sub-zero temperatures is not possible. The rig count in the basin currently is three below the January count, and the state government says that “gas capture, workforce availability, and competition with the Permian and Anadarko shale oil plays for capital continue to limit drilling rig count in the state.” North Dakota is having problems with more natural gas coming to the surface than can be piped away, so that the percent flared in February climbed to 19.2 percent. State policy is that only 12 percent of total production is allowed to be flared.
If a 1.4 million b/d increase in US shale oil production happens this year, the increase will have to come from the Permian Basin as the other shale oil regions are growing slowly and give indications of approaching a peak. April’s Permian crude production is expected to reach 4.177 million b/d, according to Energy Information Administration, up 8,000 b/d from March while the April natural gas output will increase to 14,075 million cf/d from March’s 13,859 million cf/d. The price gap between Permian Basin oil and gas will continue to widen as steady demand for crude continues to overwhelm oversupplied natural gas markets, an analysis by S&P Global Platts showed last week. Permian natural gas prices have fallen to record lows as planned maintenance on transmission lines strands gas, forcing some regional gas processing plants to flare.
As the smaller and middle-sized drillers in the Permian say they are reducing capital expenditures, any large increase is likely to come from Exxon and Chevron who are talking about substantial increases in profitable production where smaller companies have failed. The large companies, however, say they plan to move very slowly to ensure that they extract all the oil possible and not front-load production so that more oil comes out in the first month and then tails off quickly resulting in less production during the lifetime of the well than expected. How well these plans come out would seem to be the key to the future of the US shale oil industry and maybe even the global oil industry itself.
2. The Middle East & North Africa
Iran: Tehran’s oil exports have recovered close to prior levels, supported by robust demand from China and South Korea, according to data from shipping sources and provisional tanker tracking data. Shipments from Iran grew 12 percent to 1.70 million b/d in March, the highest since October, as buyers scrambled to import more oil before US sanctions waivers expire in early May. Exports could fall this summer if the US tightens its sanctions on Iran crude purchases from the eight countries given special treatment.
India imported about 5 percent more oil from Iran in the last fiscal year through March as companies raised purchases ahead of US sanctions. However, Indian refiners are holding back from ordering Iranian crude for loading in May waiting to see if Washington will extend the waivers. Companies that continue to do business with Iran, including oil purchases allowed under US waivers, will have to be careful in their dealings with Tehran after the US designated the Islamic Revolutionary Guard Corps a terrorist group. Most importers of Iranian oil do far more business with the US than with Iran and fear that their trade could be damaged if they become involved with some Iranian firm run by the Revolutionary Guard.
Iraq: The Basra Provincial Council has voted to hold a referendum on creating a new federal region, as anger over a dysfunctional government in Baghdad continues. If past efforts to turn Basra into a distinct region are any indication, there will be many obstacles to gaining some form of home rule as the Kurds have. There will be no support from the federal government to hold a vote, and the problem of convincing over half the population to vote “yes.” Basra is the oil hub of Iraq with much of the oil and the export terminal. Should some form of limited independence emerge, still more controversy is likely.
Saudi Arabia: Saudi Arabia’s crude production slumped to the lowest in two years as the Kingdom cut output to boost prices. The country’s rate of compliance with the OPEC+ production cut agreement reached 153 percent according to the IEA. The Saudi cut, coupled with a sharp drop in production in Venezuela under the weight of sanctions and a string of blackouts, helped reduce global oil supply by 340,000 bpd in March.
Saudi Aramco is set to raise $12 billion with its first international bond issue after receiving more than $100 billion in orders, a record-breaking vote of confidence in the prospects for the giant oil company. A bond issue is a safer form of investment in an oil company in a nation that can turn a larger share of profits into tax revenues should the need arise. The question now is whether the Saudis will continue with the plan to sell a 5 percent equity interest in Aramco or continue to issue bonds to raise the capital needed to diversify the economy.
The government denied last week that recent claims the Kingdom would sell its oil in currencies other than the dollar are accurate. The statement follows reports that Riyadh was considering switching from the dollar to other currencies in its oil trade in response to anti-OPEC legislation plans in the US Congress. Reuters reported last week that the switch to other currencies had been discussed in senior Saudi circles and that it had also been shared with US government officials. The Saudis fear the possibility that they could be involved in US litigation for as long as OPEC lasts.
The Saudis could begin natural gas exports in five to six years and have already started talks with neighboring Gulf Arab states about building natural gas pipelines to friendly countries in the Persian Gulf. The Saudis claim that large quantities of natural gas have been found in the Red Sea.
Libya: The National Oil Corporation said last week it is discussing ways to keep national crude production stable despite fighting between the country’s two main rival forces. For now, oil production and exports remain unaffected despite the fighting, but the recent escalation in violence has raised the risk of oil supply outages. The CEO of the oil company says that Libya’s oil and gas exports are facing the most significant threat since 2011 given the scale of the fighting. “Unless the problem is solved very quickly, I am afraid this will affect our operations, and soon we will not be able to produce oil or gas.”
Days before General Haftar launched an offensive to seize the capital and attempt to unite the divided country under his rule, Saudi Arabia promised tens of millions of dollars to help pay for the operation, according to senior advisers to the Saudi government. Should Haftar succeed in taking Tripoli, he will still face many opponents across the country who will likely look to sabotaging oil production as their best option.
3. China
BP is set to become the latest international oil company to quit drilling for shale gas in China because of poor exploration drilling results. In 2016, BP and China National Petroleum Corporation signed a production sharing contract for shale gas exploration, development, and production in the Sichuan Basin in southwestern China. Later in 2016, BP signed a second PSC deal with CNPC for shale gas exploration. However, poor results are now making BP withdraw from the projects. Every few months Beijing announces a renewed effort to exploit shale oil and gas, but so far there have been no significant results.
Those worried about the climate will be unhappy to learn that China is set to produce an additional 100 million tons of coal this year according to Wang Hongqiao, vice president of China National Coal Association. “Coal demand for power generation in China will increase, but the growth rate of general coal consumption will slow down,” Wang said. Imports of thermal coal are due to slip by 11 percent from last year due to increased domestic production. China produced 4 billion tons of coal in 2018, according to the National Bureau of Statistics but also added 194 million tons in mine capacity that year, despite promising to cut excess capacity for the sector.
China’s economic transformation over the last 40 years has driven its demand for forest products, and it is now the world’s largest importer of wood. It is also the largest exporter — turning much of the wood it imports into products headed to Home Depots and Ikeas around the world.
Since China began restricting commercial logging in its forests two decades ago, it has increasingly turned to Russia, importing vast amounts of wood in 2017 to satisfy the needs of its construction companies and furniture manufacturers. This situation is leading to a backlash in Russia where environmentalists are starting to complain that China is taking too much of the Siberian forests. Protests have erupted in many cities, and members of Russia’s parliament have assailed governmental officials for ignoring the environmental damage in Siberia and the Far East.
Chinese demand is also stripping forests elsewhere — from Peru to Papua New Guinea, Mozambique to Myanmar. In the Solomon Islands, the current pace of logging by Chinese companies could exhaust the country’s rain forests by 2036. In Indonesia, activists warn that illegal logging by local Chinese partners threatens one of the last strongholds for orangutans on the island of Borneo.
4. Russia
Shell pulled out of a project to build a Russian liquefied natural gas plant partly because Gazprom suddenly added another partner with links to President Vladimir Putin. After three years of work on the Baltic Coast project, Shell discovered that Gazprom was bringing in a company linked to Arkady Rotenberg, who is on a US sanctions blacklist. The sudden change in the line-up of partners was one of the key factors contributing to Shell’s Wednesday announcement that it was pulling out of the project.
Belarus is threatening to suspend transit of Russian crude to Europe via the Druzhba Pipeline in an attempt to pressure Moscow amid deepening economic disagreements between the two countries. Russia exports more than 1 million b/d of crude to Europe through Druzhba, including to Germany, Poland, the Czech Republic, Slovakia, and Hungary.
European refiners are paying the price for the sanctions on Venezuela and Iran as they try to find replacements for the sour crude Washington has blocked from the global market. To make matters worse, OPEC members have cut sour crude output as part of their deal with allied producers to boost oil prices, and a new refinery designed to run on sour oil has just started up in Turkey. So far Moscow is the primary beneficiary of the sour oil shortage as prices for the grades are increasing.
5. Nigeria
The International Monetary Fund (IMF) has advised Nigeria and other countries still subsidizing fuel for domestic consumption to stop doing so. The IMF said fuel subsidy removal would help boost revenue and improve on local infrastructure development. IMF wants Nigeria to remove the subsidy due to the lack of funds for infrastructure reforms and other social services. Nigeria has among the lowest tax to GDP ratios in the world. The fund also noted that Nigeria’s Excess Crude Account, which takes in revenue during times of high oil prices and pays out when prices are low, was not achieving the goals for which it was set up.
Petroleum Minister Kachikwu said the average production cost for a barrel of oil in Nigeria has declined to just $23 a barrel and that oil companies are aiming to reduce this further, to $15 a barrel. Some 226 companies have bid for a contract to manage the 176 gas flaring sites in Nigeria. The government wants to stop gas flaring in the country by the year 2020 as the wasteful practice is losing billions, but it will take a substantial investment in new pipelines and natural gas utilization facilities to make any progress. Given past experience, it is doubtful if the government’s goal will be met.
More than 50 percent of Nigeria’s oil and gas blocks remain untapped as gas shortages persist in the country. Out of 390 oil blocks in the country, 211 are yet to be allocated by the Federal Government. With many other countries making efforts to increase their oil and gas production, industry experts are concerned about the lack of new oil-licensing rounds in Nigeria since 2008.
6. Venezuela
Venezuela’s oil output sank to a new low last month due to US sanctions and blackouts. OPEC reported last week that Venezuela pumped 960,000 b/d in March. This number was published by Caracas and may be an exaggeration of production. Of more importance is the status of the four crude oil upgraders which normally process some 700,000 b/d of heavy oil so that it can be refined or exported.
While power has been mostly restored for at least part of the day in Caracas, much of the country where Venezuela’s industry is located is receiving power for less than 12 hours a day. As of the last report, only two of the four heavy oil upgraders have resumed operations, and together they are processing less than 300,000 b/d. The two other upgraders appear to have been out of service for over a month. If the operators are unable to get the upgraders back into service, Venezuela’s oil production and exports should be substantially lower in April.
Washington continued its crusade against the Maduro government last week by slapping more sanctions on shipping companies transporting oil from Venezuela. The US blacklisted four companies with nine ships for carrying oil some of which went to Cuba.
Venezuela’s government has signed an agreement with Russia under which the iron, steel, mining and agriculture industries will receive Russian investment and other participation. This agreement is nonsense as the press is reporting that only a small part of the country’s industrial concerns is working.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Norway, Western Europe’s biggest petroleum producer, is falling out of love with oil. To the dismay of the nation’s powerful oil industry and its worker unions, the opposition Labor Party over the weekend decided to withdraw its support for oil exploration offshore the sensitive Lofoten islands in Norway’s Arctic, creating a solid majority in parliament to keep the area off limits for drilling. The dramatic shift by Norway’s biggest party is a significant blow to the support the oil industry has enjoyed and could signal that the Scandinavian nation is coming closer to the end of an era that made it one of the world’s most affluent. Oil companies led by state-controlled Equinor ASA, the biggest Norwegian producer, have said that gaining access to an estimated 1 to 3 billion barrels of oil offshore Lofoten is key if the country wants to maintain production as resources are being depleted. (4/10)
In Sudan, President Omar al-Bashir, who has ruled since 1989, was toppled from power by the military on Thursday and placed under “heavy guard”, following months of protests against the government and its handling of a severe economic crisis in the country. After South Sudan’s secession from Sudan, the two countries have been mutually dependent on oil revenues, because the south has 75 percent of the oil reserves, while the north has the only current transport route for the oil to international markets.
South Sudan’s information minister told reporters in Juba, the capital, that the country will provide 30,000 b/d to state-owned lender Export-Import Bank of China to help fund South Sudan’s largest infrastructure project, which is being funded by Beijing. The amount has tripled from the 10,000 b/d it provided to China in February. South Sudan, which produces around 170,000 barrels of oil per day, gained its independence from Sudan in 2011 after years of civil war which saw China supply Sudan with arms and financing in spite of allegations of human rights abuses. (4/9)
The future of Algeria’s oil industry was called into question earlier this week as its political crisis took hold, and now its future is even more suspect, as its state-run oil company, Sonatrach, will once again find itself under the microscope as old corruption investigations are reopened and as the date is set for presidential elections after President Bouteflika stepped down earlier this month. (4/12)
Algeria again: The oil patch is reeling from a political crisis in Algeria that first saw Exxon halt its prospective shale ambitions in the country and has now spread to major trading houses and far beyond its borders. (4/10)
New “Arab spring”? From a Western point of view, the removal of president Bashir of Sudan, after several weeks of mass protests in Khartoum and other cities, is in line with the exit of Algeria’s long-time leader Abdelaziz Bouteflika. Optimism in the press, especially in the West, over both developments seem to be based on emotions and not on facts. As the Arab Spring has shown, don’t ever count out the existing power structures of the respective regimes, and specifically the armed forces. The Egyptian revolution was the first example, shortly after the ‘democratic revolution’ the military took over and reinstated the status quo. (4/12)
In Papua New Guinea, ExxonMobil, France’s Total, and Australia’s Oil Search have signed a gas agreement with the government, outlining the fiscal terms for a new liquefied natural gas (LNG) project in the Pacific island, estimated to cost $13 billion and thought to double Papua New Guinea’s LNG exports from the Exxon-operated PNG LNG plan. (4/10)
In Argentina, oil production from shale in Vaca Muerta is expected to reach 200,000 b/d by the end of 2021, said Ryan Carbrey, senior vice president of Rystad Energy. The play produced 78,000 b/d in February, up 70 percent year on year. (4/10)
Mexico’s government will open retail gasoline stations controlled by the army if retailers do not decrease fuel prices, President Andres Manuel Lopez Obrador said last week. CIF Eastern Mexico RBOB gasoline prices have averaged Peso 9.71/liter so far in April, down slightly from the October average of Peso 10.04/l. But according to the Mexican government, retail profit margins for regular gasoline have increased by 55 percent since October, as retailers have absorbed tax cuts without passing on the savings to customers. (4/10)
The US oil rig count grew by two to 833, while the active gas rig count dropped by five to 189, according to Baker Hughes, a GE Company. This brings the nation’s total to 1,022 rigs – 14 higher than one year ago when the rig count was 1,008. (4/13)
New data from the US EIA revealed that demand skyrocketed to 9.8 million b/d last week. The estimate is approximately 700,000 b/d more than the previous week and 550,000 b/d more than the first week of April in 2018. Many market analysts expect the estimate to be revised downward when EIA releases final demand figures for April later this year, but the high estimate likely signals that 2019 could bring the highest gasoline demand rates ever recorded by EIA — potentially as early as this summer. (4/13)
Rotten oil? Exxon Mobil is the latest company to raise concerns that a stockpile of US government crude is tainted with poisonous gas. The American energy giant said some of the oil it purchased last year from the Energy Department’s Strategic Petroleum Reserve, or SPR, contained “extremely high levels” of hydrogen sulfide, up to 250 times higher than government safety standards allow. (4/13)
In the GOM: Shell has sold its 22 percent interest in the Anadarko-operated Caesar-Tonga field in the US section of the Gulf of Mexico to Israeli Delek Group for US$965 million. The divestment report comes on the heels of Shell’s entry into China’s shale gas industry via a joint exploration project with the country’s largest refiner and main shale gas player, Sinopec. The exploration will take place in the eastern Chinese province of Shandong where Sinopec’s shale operations are. (4/12)
Pipeline rules bruhaha: President Trump has signed an executive order seeking to limit states’ powers in the approval or rejection of new oil and gas pipeline projects. The signing was scheduled for a trip to Texas yesterday, and expectations are that opponents of new oil and gas infrastructure will challenge it in court. Some lawyers have noted the states’ powers to grant or refuse permits for federal infrastructure projects are stipulated in federal law and a presidential order cannot trump this. (4/11)
New at Interior: The Senate on Thursday voted to confirm David Bernhardt, a former lobbyist for the oil and agribusiness industries, as secretary of the interior. The confirmation of Mr. Bernhardt to his new post coincided with calls from more than a dozen Democrats and government watchdogs for formal investigations into his past conduct. (4/12)
US natural gas-fired combined-cycle capacity overtook coal-fired capacity in 2018, the US Energy Information Administration reported on Wednesday. In the United States, natural gas-fired combined-cycle capacity has increased for years, finally overtaking coal-fired capacity, which has seen a steady decline over the last decade. (4/11)
The US’s 2019 coal production of 684.1 million tons will likely be 9.2 percent lower than the 753.7 million tons produced in 2018, while 2020 production is estimated at 640.1 million tons, the EIA said in its April Short-Term Energy Outlook. The 684.1 million tons expected in 2019 would be the lowest production since 670.16 million tons was produced in 1978. (4/10)
Car guys’ nightmare: As the Trump administration prepares to drastically weaken Obama-era rules restricting vehicle pollution, nervous automakers are devising a strategy to handle their worst-case scenario: a divided American auto market, with some states following President Trump’s weakened rules while at least one-third of the market sticks with the tougher ones. The new rules would all but eliminate the Obama-era restrictions, essentially freezing standards at about 37 miles per gallon, compared to 54.5 miles per gallon required by the current rules. (4/11)
EV batteries: Ford Motor Company is teaming up with Solid Power to develop all solid-state batteries (ASSB) for next-generation electric vehicles. The announced partnership will focus on further developing ASSBs toward automotive requirements. Solid Power’s solid-state technology combines a cathode, metallic lithium anode, and an inorganic solid electrolyte layer. Solid-state batteries offer improved energy capacity and safety as compared to current industry-standard lithium-ion batteries. (4/12)
Global sales of plug-in electric vehicles fell by 21 percent in February month on month, led by a sharp fall in China due to seasonal factors and ahead of the government cutting subsidies for EVs in March. (4/9)
EV ultra-chargers: An Australian company, Tritium, makes chargers that can add more than 215 miles to an EV’s range in just ten minutes. Companies around the world are developing such superchargers that can “fill up” an EV battery in a matter of minutes, but there is one problem: they can’t be deployed because battery makers have yet to make their product capable of withstanding the supercharge. (4/8)
New biofuel: For centuries the world has agonized over its relationship with waste – by burying it, burning it, flushing it. But entrepreneurs at Fulcrum BioEnergy are now trying to turn it into jet fuel. Organic material like banana peels will be put into a vessel to decompose under pressure and heat, in a similar process to the creation of fossil fuels over hundreds of millions of years. The Californian start-up is investing $280m in a plant near Reno, Nevada, that, once fully operational, is expected to produce 10m gallons of renewable “syncrude” [synthetic crude] a year from organic material that would otherwise go to waste. (4/8)
An Achilles heel of RE: While proponents argue that solar and wind are already cost competitive with oil and gas, that’s not true in extreme winter weather. Critics of the Green New Deal proposed by Congresswoman Alexandria Ocasio-Cortez have used the opportunity to point at the shortcomings of solar and wind in extreme weather conditions as an argument against a Green New Deal. (4/11)
UK’s move to RE: The UK’s Department for Business, Energy & Industrial Strategy has set out its aim to increase renewables generation 75% from 2018 levels by 2035, with the expectation that there will be a gradual decline in gas-fired generation. The department forecast renewables production to rise to 211 TWh by 2035. This 211 TWh also represents 58% of total electricity supplied in the UK in 2035. (4/12)
South Africa is facing an energy crisis. The once distinguished national public energy provider, Eskom, has been driven to the point of collapse by “years of corruption, incompetence and political meddling”. Under the Presidency of Jacob Zuma, Eskom went from making a billion Rand profit in 2008 to making a 2.3 billion Rand loss. The Eskom crisis has only depressed an already strained economy. This critical situation has left Cyril Ramaphosa, the presidential incumbent, in an uncomfortable position. To address South Africa’s myriad problems, Ramaphosa must garner support and reform a party filled with discredited Zuma loyalists. (4/11)
London clampdown: The Ultra-Low Emission Zone (ULEZ) has come into force in central London. Drivers of older, more polluting vehicles are being charged to enter the congestion zone area at any time. However, the Federation of Small Businesses said many small firms were “very worried about the future of their businesses” as a result of the “additional cost burden”. Most vehicles which are not compliant will have to pay £12.50 for entering the area each day, in addition to the congestion charge. (4/8)
Shipping speed limit? France’s delegation to the International Maritime Organization has proposed mandatory slow steaming as a means of cutting the shipping industry’s greenhouse gas emissions. France is suggesting that speed limits differentiated by shipping sector should be implemented “as soon as possible.” Reducing a ship’s speed to the level at which it has maximum fuel efficiency reduces its bunker fuel consumption and emissions. (4/11)
Shell’s carbon offsets: Royal Dutch Shell is launching a $300m forestry program in an attempt to reduce its emissions, at a time when an increasing number of oil companies are investing in carbon offset plans to comply with climate goals. The energy company will spend $300m over the next three years on projects to store carbon, including large forests in the Netherlands and Spain, and will start offering motorists the option of purchasing carbon offsets when they buy petrol or diesel at the pump. (4/10)
Peak Oil Review: 8 April 2019
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2019-04-08/peak-oil-review-8-april-2019/
Quote of the Week
““Fast [nuclear] reactors are less safe, less secure and more proliferation-prone than light-water reactors. The US Department of Energy should not be asking taxpayers to spend billions on this dangerous reactor.” Ed Lyman, senior scientist with the Union of Concerned Scientists
1. Oil and the Global Economy
London’s oil prices broke through the $70 a barrel barrier last week to close at $70.34. New York futures were some $7 behind to close at $63. Oil prices gained around 30 percent in the first quarter with London and New York posting their best quarterly performance in the last ten years. Behind the unexpected surge in oil prices – US gasoline is up 50 cents a gallon – are the US sanctions on Iran and Venezuela and the OPEC+ production cut. The restraints on production joined with stronger-than-expected demand for oil products to produce the price increase.
Although the IMF is saying that the clouds of a global economic slowdown are gathering, for now the forces pushing prices higher have the upper hand. Last week what could be the beginning of a civil war broke out in Libya threatening the country’s 1 million b/d oil production. Heavy rains are flooding the region where most of Iran’s oil is produced – likely reducing output in the immediate future. Finally, Venezuela is moving towards a total societal collapse with the likelihood of much lower oil exports in the coming weeks.
Then we have indications that the rapid growth of US shale oil production may be slowing as Wall Street holds back on pouring still more money into a money-losing industry. This situation could change if oil prices return to levels of ten years ago or if the Sino/US trade dispute is settled. In sum, the global oil situation is more volatile than usual with many uncertainties ahead.
The OPEC Production Cut: The cartel’s production in March fell to its lowest level since February 2015, as Saudi Arabia cut more than it had pledged under the output deal and Venezuela continued to contend with the US sanctions and a series of power blackouts. There is an unusually large disagreement between Reuters and Platts, with the former estimating that OPEC’s production fell by 280,000 b/d last month and Platts suggesting it was 570,000 b/d. Much of this disagreement seems to be over how much oil Caracas was able to export between power outages that stopped exports for about a week last month. Iraqi exports were down by about 100,000 b/d due to bad weather at its export terminal.
The rate of compliance from the eleven OPEC members bound by the pact—with Iran, Venezuela, and Libya exempted—also suggests that the Saudis and their Arab Gulf partners are deepening the cuts in order to drive prices higher.
Various OPEC ministers have been suggesting during the last few weeks that the production cut needs to be extended when the cartel+ meets in June. Russia has been saying it sees no need for an extension, and with oil prices back above $70 a barrel, it is difficult to make a case for extending the cuts. Should production in Venezuela and Libya fall dramatically in the next two months the loss of exports from these two countries could be larger than the OPEC+ cuts.
US Shale Oil Production: Average daily crude oil production slipped during January for the first time in nearly six months, according to an EIA monthly report, which was based on better information than the weekly production estimates. January oil production for the US averaged 11.871 million b/d for January—down from 11.961 million b/d in December of last year. The January production decline, a falling-off in oil well productivity, a drop in the rig count, and reports that Wall Street is going to slow financing for shale oil drillers who consistently lose money all suggest that change is coming.
US crude production surged in 2018, with overall production rising by 1.7 million b/d to a record 10.9 million. That was the biggest year-over-year increase in output, according to EIA data going back to 1859. The 2018 surge led to optimistic predictions that large increases would continue for the next few years. Financial writers are now suggesting that rapid growth in US shale oil production will soon shift to a plateau, putting more pressure on the OPEC+ consortium to increase output in June.
Even the ever-optimistic EIA trimmed its 2019 production forecast from 12.4 million b/d to 12.3 million. Morgan Stanley also cut its projection for this year by 100,000 b/d due to well “productivity improvements slowing, the rig count rolling over” and guidance from exploration and production companies.
In response to the demands of investors, the small drillers have been cutting spending in response to years of losses. Although Exxon and Chevron are expanding in the Permian Basin, independent companies are not. While the major oil companies plan to spend about 16 percent more on US drilling and completions in 2019 versus last year, the independent exploration and production companies are expected to cut spending by around 11 percent.
Lower amounts of oil are also being delivered per well, slowing the rate of output growth. In the Permian Basin, per-well productivity is projected to fall by about 6 percent this month compared with a year ago, according to the EIA. This development likely reflects an inevitable reduction in the number of productive sweet spots which is forcing drillers to less profitable locations. The course of this trend and oil prices will determine just how much longer shale oil production in the US remains viable.
Another sign of trouble ahead is the drop in the value of merger and acquisitions deals in the US. In the first quarter, the value of these deals plunged 93 percent to a 10-year low as investors began insisting that shale oil producers start to show profits rather than just increased production.
Colorado’s legislature passed a sweeping overhaul of the state’s oil and natural gas laws, giving local governments more power to regulate drilling. The bill, which passed the state Senate amid intense industry opposition, now heads to the desk of the governor, a longstanding proponent of tightening public health and safety standards around oil and gas development. Much of the shale boom in Colorado is concentrated in the relatively dense suburbs north of Denver, which means, unlike the fracking in West Texas and North Dakota, drillers often bump up against homes, businesses, and schools.
Natural gas prices fell into record negative numbers in the Permian basin last week. Natural gas in West Texas is produced as a byproduct. This dynamic helps explain how natural gas prices at the Waha hub in West Texas can fall to a negative $3.38 per million BTUs as producers are paying others to take the gas away. In North Dakota, excess gas is flared despite restrictions, but Texas is imposing stiffer controls.
2. The Middle East & North Africa
Iran: Khuzestan province in southwestern Iran was hit by the worst flooding in 70 years last week. About 1,900 cities and towns have been affected, and some 100,000 people were evacuated to shelters. The province is the center of Iran’s oil industry which has undoubtedly been interrupted by the flooding putting still more pressure on the government which is having trouble coping with the US sanctions.
After a meeting with the Iraqi prime minister last week, President Rouhani said he is ready to expand gas and electricity trade with Baghdad and develop a plan to connect their railroad systems.
Washington’s sanctions waivers which allow eight countries to import oil from Iran are due to expire in six weeks. Oil prices are once again on the rise, as they were six months ago when the Trump administration buckled under the pressure of $80 oil and granted the waivers. Three of the eight countries with waivers have reduced their imports of Iranian crude to zero, and the US says it is not planning to extend them. In the last three months, however, oil prices have been climbing rapidly – partly due to the new US sanctions on Venezuela — with oil prices already in the low $70’s and likely will be higher in a month or so. This situation may force Washington to extend the waivers or face still higher oil prices.
Iraq: Oil exports fell to an average of 3.377 million b/d in March, the Oil Ministry said on Monday, as poor weather interrupted loadings. February loadings were 3.62 million b/d. The severe weather also forced a cut in production at some oilfields including Majnoon, where output declined in mid-March by 140,000 b/d from 240,000 b/d earlier in the month. Basra is close to Iran which currently is suffering from severe flooding so Iraq’s problem may continue into early April.
Iraqi Prime Minister al-Mahdi and Kurdistan‘s Prime Minister Barzani ignored a request to sign pleadings in the court case aimed at settling the long-standing oil dispute between the two governments. Observers say this is a sign that neither side is eager to have Iraq’s highest court decide on their disagreement over the division of oil revenues.
Saudi Arabia: In anticipation of its $10 billion international bond sale, Aramco was forced to issue its first public financial statement since the firm was nationalized nearly 40 years ago. Last year Aramco had earnings of $224 billion and said it has oil and gas reserves of 257 billion barrels which could last for 50 years at the current rate of production. The big surprise in the prospectus was the revelation that the giant Ghawar oil field is only able to produce 3.8 million b/d rather than the 5.8 million b/d that the EIA said it could produce last year.
The news sparked a debate as to whether Saudi production is starting to decline. During a presentation in Washington in 2004 Aramco tried to debunk the “peak oil” supply theories of the late US oil banker Matt Simmons by claiming the field was pumping more than 5 million b/d. The new maximum production rate for Ghawar means that the Permian in the US, which produced 4.1 million b/d last month, is already the world’s largest oil production basin.
Saudi Arabia is threatening to sell its oil in currencies other than the dollar if Washington passes a bill exposing OPEC members to US antitrust lawsuits. The chances of the US bill known as NOPEC coming into force are slim, and Saudi Arabia would be unlikely to follow through on their threat. Should the Saudis abandon the dollar, it would undermine its status as the world’s primary reserve currency, reduce Washington’s clout in global trade, and weaken its ability to enforce sanctions on nation states.
Libya: The political situation underwent a sea change last week when General Haftar, who controls eastern and southern Libya, ordered his troops to march on Tripoli to oust the UN-backed government and take over the country. Heavy fighting is taking place south of Tripoli and militias from Misrata are moving to support the government. The US is moving an unspecified number of troops somewhere in the area and foreigners are evacuating the capital.
When the order to attack Tripoli was given, the UN secretary-general was in Libya trying to broker a solution to the split government by organizing a conference scheduled for next week. This effort now is dead. Many Libyans distrust Haftar who they see as a potential dictator.
Libya has been split for five years between a UN-backed government in Tripoli and rival government in the east under the control of General Haftar. The Tripoli government is protected by an array of militias including a particularly strong one in Misrata. Haftar has been supported by Egypt, the UAE, and Russia.
An important question is what happens to oil production if the fighting is prolonged. Libya recently increased production to over 1 million b/d which could be threatened by a civil war. It was Haftar’s forces who recently moved on the Sharara 315,000 b/d oilfield and restored production there.
3. China
President Trump said last week that the US and China are hoping to reach a trade deal in the next four weeks, though he failed to announce a much-anticipated summit with Xi Jinping. Mr. Trump and his trade team say negotiations are in their final stages, but caution that daunting issues remain—including when to lift punitive tariffs against Chinese imports, protection of US intellectual property and enforcement of the pact’s provisions. There are “major issues left,” US Trade Representative Robert Lighthizer said. “We’re certainly making more progress than we would have thought when we started.”
Chinese factory activity unexpectedly grew in March for the first time in four months, suggesting that the government’s stimulus measures may be starting to take hold. If sustained, the improvement in business conditions could indicate that manufacturing is on a path to recovery, easing fears that China could slip into a sharper economic downturn. But analysts remained cautious, citing seasonal distortions due to the long Lunar New Year break in February.
China’s three state oil and gas companies plan to increase their spending on oil and gas by 20 percent this year, bringing the total to some $74 billion for the first time in five years. Some observers are skeptical that plowing this much money into aging oil fields will pay off with much of a production increase.
China will be able to build six to eight nuclear reactors a year once the approval process gets back to normal according to the chairman of the China National Nuclear Corporation. “That should be enough to meet our country’s 2030 development plans.” China did not approve any new projects in the wake of Japan’s Fukushima disaster until it permitted the construction of two new reactor complexes in southeast China earlier this year.
4. Russia
Moscow’s oil output declined to 11.298 million b/d last month, missing the target set under OPEC+ deal to cut oil production. The March output was down by around 112,000 b/d from the October 2018 level, the baseline of the global deal; however, Russia had pledged to cut its oil output by 228,000 b/d from the October level. Energy Minister Novak said last week that the country’s oil production in April would be in line with the OPEC+ deal.
Rosneft, the largest oil producer in the country, plans to develop an Arctic cluster of oil fields over the next five years. These plans fit President Putin’s ambitions to develop Arctic oil and gas resources and adjacent regions, as well as the Northern Sea Route to the Far East. Russia’s Arctic oil development has stalled in recent years due to the western sanctions that have had international majors, including ExxonMobil, pull out of some exploration projects in Russia.
5. Nigeria
Exxon Mobil may sell the oil and gas fields it holds in Nigeria and has commenced talks on the sales as it focuses on US shale and the new field offshore Guyana, industry and banking sources told Reuters. The potential sales are expected to include stakes in onshore and offshore oil fields and could raise as much as $3 billion. The development followed a statement from the Nigerian National Petroleum Corporation that it would no longer sign off any gas project without plans for stopping natural gas flaring.
Exxon declined to comment on the development, adding that the oil company, which is one of the largest oil and gas producers in Nigeria with 106 operating platforms, is producing about 225,000 b/d in the country.
Petroleum Minister Emmanuel Ibe Kachikwu admitted that reducing oil production to the quota assigned by OPEC is a challenge because of the start of production at the Egina offshore oil field with a capacity of 150,000 b/d.
The petroleum minister has tasked local Nigerian operators to step up their investments and take over operations from international oil companies, especially as many are already considering divesting and charting new paths. The minister emphasized the need to double oil production to 4 million b/d as against the current output of between 1.9 to 2 million b/d. According to the minister, changes in the global oil and gas industry are presently challenging the exploration and investment strategies as oil is fast becoming a degenerating asset with alternative sources of energy taking over.
6. Venezuela
President Maduro announced 30 days of electricity rationing after a third blackout hit the struggling the country early last week. Maduro said rolling blackouts would help the government deal with the power failures that have also affected water supply and communications.
Reuters says that PDVSA was able to keep exports near 1 million b/d in March despite power outages that halted pumps at the main export terminal for at least six full days. The company was able to offset the power failures by loading mainly very large tankers bound for Asia and the company already had the oil to be exported in storage. Venezuela at one time was shipping close to 3 million b/d and still appears to have the ability to load 1 million b/d in three weeks of pumping.
A more severe problem in the weeks ahead is the status of the four crude upgraders which convert the very heavy Orinoco oil into a transportable and marketable crude. The four upgraders have a combined capacity of 700,000 b/d and are mostly operated jointly with the help of partners from the US, Russia, France, and Norway. A large percentage of Venezuela’s crude exports is coming from these facilities as the rest of the country’s oil production is crumbling due to lack of maintenance.
Two of the upgraders have been out of service since the March 7th blackout while the other two stopped production after the March 25 blackout. Work continues on cleaning up the mess when the power goes off unexpectedly. Three of the upgraders may be back in partial operation later this month, but one is expected to be out of service indefinitely. One source told Reuters that PDVSA has canceled all shipments of upgraded crude during April. If this is true, and Venezuela does not have much marketable crude in storage, exports could plummet this month pushing oil prices much higher.
Vice President Pence announced that the US is adding 34 PDVSA owned or operated vessels to the sanctions list. The sanctions not only target the PDVSA vessels but also two firms that transport Venezuela crude oil to Cuba. Pence said that this may not be the final addition to the sanctions list as the US mulls even more sanctions, this time targeting the financial sector.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
EU oil Co’s to electricity: European oil companies have started to address what they worry may one day be an existential threat to their business — the end of a century of oil demand growth in a low carbon world. The emergence of the electric vehicle and demand among investors and consumers for cleaner energy to limit climate change has pushed the European side of Big Oil to take baby steps towards refocusing their businesses from oil production and refining to electricity via natural gas and renewables. (4/4)
Saudi Aramco made $111 billion in net income last year, according to rating agency Moody’s Investors Service, making the oil and gas firm the most profitable company in the world. Moody’s and Fitch Ratings published snapshots of Aramco’s financials on Monday as they rated the oil firm ahead of a $10 billion Aramco bond sale expected as soon as this week. (4/1)
Egypt will remove subsidies on most energy products by June 15 it told the International Monetary Fund in a January letter released as part of a review of Cairo’s three-year, $12 billion loan program with the lender. Removing the subsidies will mean increasing the price to consumers of gasoline, diesel, kerosene and fuel oil, which are now at 85-90 percent of their international cost. (4/6)
Tanzania’s government will start this month talks with major international firms to define the commercial terms for a deepwater liquefied natural gas project off the coast of the east African country expected to be worth $30 billion. Major international companies have been exploring for gas offshore Tanzania and have found sufficient quantities for a potential LNG plant. (4/5)
Ecuador loses again: The Supreme Court of Canada dismissed claims attempting to force Chevron Corp’s Canadian unit to pay a $9.5 billion judgment handed down in Ecuador against the US oil major over pollution in the Andean country. Residents of Ecuador’s Lago Agrio region have been trying to force Chevron to pay for water and soil contamination caused from 1964 to 1992 by Texaco, which Chevron acquired in 2001. The villagers obtained a judgment against Chevron in Ecuador in 2011. But the company has no assets in the country. (4/5)
In Colombia, state-run oil company Ecopetrol and Exxon Mobil have each signed joint contracts with Spain’s Repsol to explore for oil in offshore blocks in the Caribbean. Colombia recently modified contractual terms for offshore exploration and launched a permanent bidding process to boost its long-stagnant oil sector. Companies including Shell, Noble, and Parex have since signed on to operate new blocks. The two contracts will generate some $700 million in investment. (4/4)
In Canada, the stubborn, sharp rise in heavy crude prices may finally falter later this year, when swelling output overwhelms a pipeline system that will be lacking a key project producers had counted on, according to Deloitte. Western Canadian Select crude prices have more than doubled since the end of November, buoyed by the Alberta government’s output limits for drillers in the province. (4/4)
The US oil rig count increased last week by 15 to 831, up from 808 rigs one year ago, according to GE’s Baker Hughes. Active gas rigs climbed by four to 194, bringing the total rig count to 1,025. The following states added rigs: Texas (8) West Virginia (4) New Mexico (3) Alaska (2) Colorado (2) North Dakota (1). Among the major basins, the Permian saw the most gains as it added eight rigs while the Marcellus added another three. (4/6)
Total weekly US crude and product exports should be consistently outpacing imports starting in 2020. Thanks to hydraulic fracturing and horizontal drilling, crude production has boomed 140 percent over the past decade. During 2018, for instance, output rose nearly 25 percent, even more impressive since domestic prices (WTI) had fallen 23 percent to $46 per barrel by the end of December. (4/5)
SPR debate: US Congress should debate whether to reduce the emergency crude oil stored in the Strategic Petroleum Reserve (SPR) because America’s oil production boom has diminished its reliance on imports, US Secretary of Energy Perry said at a Senate hearing on Tuesday. The Strategic Petroleum Reserve is a US Government complex of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts. As of March 29, 2019, the SPR held a total of 649.1 million barrels of crude oil. (4/4)
Keystone pipeline…again: President Trump on Friday signed a new permission for TransCanada Corp to build the long-delayed Keystone pipeline for imports of Canadian oil, replacing his previous permits in a fresh attempt to get around the blocking of the $8 billion project by a court in Montana. (4/6)
In Colorado, new legislation changing regulation of the oil and gas industry is arguably much weaker than a public referendum from last year that would have imposed state-wide setback distances. The law in question only grants localities the ability to set their own, rather than state-wide setbacks. Moreover, there will be a lengthy rulemaking process, so any fallout for the industry won’t be immediate. Some localities in favor of drilling may not impose limits at all…While Wall Street has grown more skeptical of the shale industry in general, Colorado-focused drillers have been particularly hit. (4/5)
CA’s oil off-ramp: The shale revolution that has transformed the US oil and gas industry has completely passed California by. Not that long ago, California was the second most important US oil-producing state. Since peaking in 1985, however, output has plunged almost 60 percent to 460,000 b/d. This collapse is made even more discouraging by the fact that total US crude oil production has been soaring to record heights. The inevitable result of plummeting production amid high consumption is that California is forced to import 70 percent of the oil that it needs. With the collapse of Alaska’s production, foreign sources now supply almost 60 percent of California’s crude oil, compared to just 15 percent 20 years ago. (4/4)
In Ohio, Royal Dutch Shell is on track to revitalize the Rust Belt by building the first major factory in the region since 1992. The massive polyethylene plastics plant being constructed along the Ohio River 30 miles outside of Pittsburgh will cover a whopping 386 acres. The estimated price tag of $6 to $10 billion (with a $1.6 billion package in reduced taxes over 25 years granted to Shell by the state of Pennsylvania) makes the factory one of the most significant industrial projects ever developed in the area. (4/3)
California is escalating its battle with the Trump administration over cars and climate change, filing suit Friday to demand that two federal agencies release data they used to justify a rollback of auto emissions standards. The lawsuit by the state Air Resources Board says the Trump administration failed to show it met requirements to take meaningful input from state officials while it crafted a new proposal to ease emissions standards. (4/6)
MPG vs. vehicle type: Does the higher occupancy of SUVs compensate for their higher energy consumption per vehicle distance when considering energy consumption per occupant distance? Barely. The results from a recent study are shown in the table below (4/3):
EVs in NC: Duke Energy is proposing a $76-million initiative to spur EV adoption across the state of North Carolina—the largest investment in electric vehicle infrastructure yet in the southeastern US. In a filing with the North Carolina Utilities Commission, Duke Energy outlined its program that will provide incentives to customers. It will also lead to a statewide network of fast-charging stations to meet growing demand.
US weekly coal production was estimated to be 10.5 million tons for the week ended March 30, down 6.6 percent from the previous week and down 26.3 percent from the year-ago week, US EIA data showed Thursday. This was the fifth week in a row of decreases from the year-ago week. (4/5)
German coal shutdown: President Frank-Walter Steinmeier received on Wednesday the symbolic ‘last piece of black coal,’ marking the end of Germany’s two centuries of hard black coal production, while the country struggles to keep up with European peers in curbing emissions. Germany closed its last black coal mine in December 2018. In January this year, Germany became the latest important European economy to lay out a plan to phase out coal-fired power generation. (4/4)
Nuclear power appeals as being a source of reliable electricity without causing greenhouse gas emissions. But new reactors are so expensive that in many countries they are unable to compete with cheap gas and coal or renewable energy sources. If new nuclear plants are to play any significant role in curbing future emissions in developed economies, their costs are going to have to come down a long way. That is the argument underlying the recent upsurge in interest in new nuclear technologies, including small modular reactors (SMRs). (4/5)
The rapidly dropping cost of renewable energy has upended energy economics in recent years, with new solar and wind plants now significantly cheaper than coal power. But new research shows another significant change is afoot: The cost of batteries has been declining so rapidly that renewables plus battery storage are now cheaper than even natural gas plants in many applications, according to a new report by Bloomberg New Energy Finance. BNEF reports that electricity prices for onshore wind, solar PV and offshore wind have fallen by 49 percent, 84 percent, and 56 percent respectively since 2010. Costs for lithium-ion battery storage have dropped 76 percent since 2012 — and plunged 35 percent in the past year. (4/5)
Nuke $ overrun news: The flagship of the Trump administration’s advanced nuclear power research program could cost about 40 percent more than a government official estimated earlier this year, a US Department of Energy document shows. Energy Secretary Rick Perry has tried to breathe life into the country’s nuclear power industry, which is suffering in the face of competition from plants burning cheap natural gas as well as falling costs for wind and solar power. Perry announced the versatile test reactor, or VTR, in late February, saying it was a “key step to implementing President Trump’s direction to revitalize and expand the US nuclear industry,” and critical for national security. (4/5)
RE & batteries: Billionaires are spending more on renewable energy, storage, and battery technology. A group of them even set up a $1-billion fund, Breakthrough Energy Ventures, to encourage research in these areas, aiming “to make sure that everyone on the planet can enjoy a good standard of living, including basic electricity, healthy food, comfortable buildings, and convenient transportation, without contributing to climate change.” One big reason for this is that there is more technology to invest in. (4/2)
Corn production: A new study finds that environmental damage caused by corn production results in 4,300 premature deaths annually in the United States, representing a monetized cost of $39 billion. The paper, published in Nature Sustainability, presents how researchers have estimated for the first time the health damages caused by corn production using detailed information on pollution emissions, pollution transport by wind, and human exposure to increased air pollution levels. (4/2)
India’s polluted air: According to an independent study by the International Institute for Applied Systems Analysis (IIASA) and the Council on Energy, Environment, and Water (CEEW), more than 674 million Indian citizens are likely to breathe air with high concentrations of PM 2.5 in 2030 even if India were to comply with its existing pollution control policies and regulations. (4/1)
In Germany, a top Volkswagen group executive said that the group alone is responsible for around 2 percent of global carbon emissions, about the same amount that Germany emits. It’s almost one percent for cars and one percent for trucks. Germany, in comparison, accounts for nearly 2.2 percent of C02 emissions. (4/4)
British Columbia-based Carbon Engineering has shown that it can extract CO2 cost-effectively. It has now been boosted by $68 million in new investment from Chevron, Occidental and coal giant BHP. But climate campaigners are worried that the technology will be used to extract even more oil. (4/4)
Canada is warming twice as fast as the rest of the world, a landmark government report has found, warning that drastic action is the only way to avoid catastrophic outcomes. The report, released late on Monday by Environment and Climate Change Canada, paints a grim picture of Canada’s future, in which deadly heatwaves and heavy rainstorms become a common occurrence. (4/3)
Peak Oil Review 1 April 2019
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
April 1, 2019
https://www.resilience.org/stories/2019-04-01/peak-oil-review-1-april-2019/
Quote of the Week
“In just a little more than a year, Mexico’s net oil exports fell from 314,000 barrels per day to net imports of 90,000 barrels per day in December 2018…I find it strange that this has not yet been mentioned in the news as it is a very critical factor for the future of Mexico.” Steve St. Angelo, oil industry commentator
Graphic of the Week
World demand growth for key materials vs. GDP and population growth
1. Oil and the Global Economy
Prices have climbed steadily for the last three months closing on Friday above $60 a barrel in New York and $67 in London. The combination of slowing US shale oil drilling and the Venezuela, Iran, and the OPEC+ situations continue to outweigh the bad economic news that may someday lower demand. The situation in Venezuela gets worse every day, and it seems likely that the country will see a significant drop in production and exports during March.
On Friday, the EIA reported that the average daily US crude production slipped during January for the first time in nearly six months falling to 11.871 million b/d from 11.961 in December. This number is likely to be more accurate than the weekly estimates that are based more on trends than actual production numbers. Given the severe weather across North Dakota during the last two months, it seems unlikely there will be an increase in Bakken production until spring.
The US oil rig count continues to slide, falling from 885 on January 1st to 816 last week. This situation suggests that we may not see another 1.8 million b/d gain in shale oil production like happened in 2018 despite all the hype about the smarter and wealthier international oil companies taking over the Permian Basin from smaller, less efficient, drillers.
U.S. and Brent crude oil futures touched a new high for the year this week. While the price increase is underpinned by the fundamentals of the oil market, optimism is increasing that a settlement of the US-China trade dispute is in the offing and that the prospects for a recession later this year are receding.
It should be noted, however, that along with higher crude prices, US gasoline prices have been increasing at a steady pace – up 28 cents a gallon in the last month. Prices on the US West Coast are already over $3 a gallon and Michigan, Illinois and Pennsylvania are in the vicinity of $2.80. While nobody is forecasting a return to $4 a gallon gasoline in the US in the immediate future, California is already at $3.61 for regular and is approaching the point where discretionary driving starts to slow.
The OPEC Production Cut: Saudi Arabia is having a hard time convincing Russia to stay much longer in an OPEC+ pact cutting oil supply, and Moscow may agree only to a three-month extension. Russian Energy Minister Novak told the Saudis last month that he is under pressure to end the cuts but would agree to extend the cuts to the end of September. Moscow has always been skeptical of the cuts, given that the collapse of Venezuela amounts to nearly the same thing without harming the major oil exporters. Last November, Russia agreed to go along with the deal but warned that it would not be able to cut 50,000-60,000 b/d until spring. This situation left the Saudis and the other Gulf Arabs to shoulder the bulk of the cut.
In the meantime, President Trump, worried about the price of gasoline during next year’s presidential election, is calling for higher OPEC production.
US Shale Oil Production: The International Energy Agency recently forecast that a “second” shale revolution was on the horizon. The next wave would drive US oil output to “19.6 million b/d by 2024 up from 15.5 million b/d in 2018,” and higher crude exports are expected. The forecast was published just before the CERA Week 2019 conference last month and caused “ecstatic dialogues about the viability and future direction of the industry. US production is expected to account for 70% of the total increase in global output capacity by 2024, while total exports of crude and refined products should reach 9 million bpd, surpassing rivals Russia and Saudi Arabia.
The Agency probably made this optimistic forecast based on the growth of US shale oil production in recent years without giving much concern to recent developments or the economics of shale oil. There is increasing evidence that the financers of the 10-year-old shale oil boom are becoming tired of the billions of dollars that they have lost as for most producers it still costs more to find and extract shale oil than the product selling price. Although there have been “efficiencies” in producing shale oil in recent years, a large number of drillers are still losing money even with oil now selling for $60 a barrel.
The next issue is whether there is enough oil left to extract at affordable prices. This issue seems to be focusing on the Permian Basin as the other shale basins have not been growing rapidly in the last two years despite all sorts of expensive “new technology” and procedures being applied. As some of these are rather new ways of extracting oil, we will not know for a couple of years whether they increase the amount of oil ultimately recovered from a given well or just extract it faster. Some geologists who have looked closely at the Permian doubt that the large amount of oil that the Geologic Survey says can be found in the basin will ever be produced economically.
The last issue is the growing presence of the international oil companies in the Permian Basin. These companies have very large cash flows and can even afford to produce shale oil from the Permian at a loss provided they can make up the difference between the well and the retail gas pump. If there is oil that can be produced economically in the Permian Basin even by the international oil company standards, then production there might be able to grow. If the affordable oil is not there, then there may not be much of a “second” shale oil revolution in the immediate future.
Last week two South Korean refiners canceled the delivery of U.S crude oil cargoes saying they were concerned about the quality of the crude. There is a massive pipeline network carrying crude oil from US shale oil fields to the Gulf Coast ports. While passing through many pipelines, oil can get contaminated with oil residue, heavy metals, pipe cleaning agents, and a group of compounds called oxygenates. The latter can be especially troublesome to refiners. If contamination of US shale oil proves to be endemic, we could see demand drop.
2. The Middle East & North Africa
Iran: Renewal of the US sanctions waivers which affect Iranian sales to India, China, South Korea, Taiwan, and Japan is the subject of much debate in Washington. The National Security Council staff does not want to extend the waivers, while the State Department believes such an action would do more harm than good. Iran’s exports seem to be down by about a million b/d since before the sanctions were announced and some believe that as much as another million b/d could be cut from Tehran’s exports if its major customers stop all imports. Japanese refineries have already halted imports of Iranian oil after buying 15.3 million barrels between January and March in anticipation that the US sanction waiver will not be renewed.
Over the years, Iran has become expert in evading US sanctions though what Washington describes as a vast network operating in Turkey and the UAE which helps the Iranians to continue exporting oil and receiving payments. Among the techniques Tehran uses is transferring oil at sea from Iranian tankers to those of foreign registration and issuing forged export certificates attesting that the cargoes originated in Iraq.
Torrential rains have plagued Iran in the last few weeks with 26 of 31 provinces issuing flood threats. Particularly hard hit was Khuzestan Province which produces some 70 percent of Iran’s oil and almost all of its natural gas.
The loss of revenue from the sanctions is starting to have an impact on Iran’s foreign policy. Projects Iran promised to help Syria’s ailing economy have been postponed. The Trump administration says the strains show that the sanctions are effective. However, other observers doubt constrained oil sales will ever have much effect on passions loose in the Middle East.
Iraq: Iraq’s total oil production fell by about 70,000 b/d in February as the government began cutting output to comply with the OPEC+ agreement. The federal government and the KRG together produced some 4.83 million b/d, down from an estimated 4.90 million b/d in January.
Security forces at the Alaas field in northern Iraq have thwarted an attack by Islamic State militants, killing and injuring several attackers. This attack is the latest by the terrorist group on the same oil field after it was driven out of the area in 2017. While Baghdad celebrated the defeat of Islamic State after the battle for Mosul, some military experts warned that not all militants were destroyed in the push and that the group will sooner or later resurface.
Saudi Arabia: An underfunded budget is forcing the Saudis to push for oil prices of at least $70 per barrel this year, even though US shale oil producers could benefit, and Riyadh’s share of global crude markets might be further eroded. Riyadh cut exports to its primary customers in March and April despite refiners asking for more of its oil. The move defies President Trump’s demands that OPEC help to reduce prices while he toughens sanctions on oil producers Iran and Venezuela.
The long-awaited Saudi Aramco acquisition of Saudi Basic Industries Corporation (SABIC) took place last week. Aramco has acquired a 70 percent stake in SABIC, with an estimated value of $69.1 billion. The deal would join Saudi Arabia’s two largest companies and give the Saudi sovereign-wealth fund, SABIC’s current owner, roughly the same amount of money it had expected from an initial public offering for Aramco. This money will supply part of the capital that Prince Mohammed needs to diversify the Saudi economy. Saudi Aramco plans to issue a $10 billion bond this week start the funding of the SABIC purchase. The bond would be the first-ever debt issuance by the Saudi Arabian Oil Co.
US Energy Secretary Perry has approved six secret authorizations by companies to sell nuclear power technology and assistance to Saudi Arabia. The Trump administration has quietly pursued a deal to sharing US nuclear power technology with the Saudis, who plan to build at least two nuclear power plants. Several countries including the United States, South Korea, and Russia are competing for that deal, and the winners are expected to be announced later this year.
Libya: Oil workers at Sharara oilfield, which recently re-opened after a three-month occupation by militant workers, have demanded a salary increase of 67 percent as they try to return oil production at the field to its normal 315,000 b/d production.
3. China
Profits at large Chinese industrial companies fell at the fastest pace in almost a decade in the first two months of 2019 in the latest sign of a slowdown for the Chinese economy. Industrial profits fell 14 percent year-on-year, figures from the National Bureau of Statistics showed, the largest drop recorded since May 2009. Earnings in the auto industry tumbled 42 percent year-on-year for January and February.
Uncertainty caused by the US-China trade war, as well as a government crackdown on China’s high levels of corporate debt, led the country’s economic growth to fall to its slowest annual rate in almost three decades in 2018. The fall in industrial profits comes despite a series of fiscal and monetary stimulus measures put in place since July to shore up growth. The possibility that China’s economy is headed for a steep downturn is a significant factor in keeping a lid on oil prices.
China’s largest state-run oil majors, China Petroleum & Chemical (SINOPEC), China National Petroleum Corporation (CNPC), and China National Offshore Oil Corporation (CNOOC) have announced plans to spend billions in the next few years to increase oil output. Many observers are saying this effort will be a massive waste of money as China has few opportunities to open new oil fields and that increases in capital expenditures attempting to rejuvenate aging oil fields is unlikely to pay off.
According to data published by China’s National Bureau of Statistics, Chinese mines produced 3.55 billion tons of coal last year, a 5.2 percent increase as compared to 2017. The bureau also reported that in 2018 the country generated a total of 4.979 trillion kilowatt-hours of electricity from coal-fired power plants, 6 percent higher than the same measure in 2017. Moreover, data released by the Chinese energy bureau last week shows that the country added 194 million tons of coal mining capacity during 2018. This increase in production capacity is in direct contrast with China’s widely publicized promises to reduce their dependence on fossil fuels, especially dirty coal, as well as specific avowals to do away with excess mining capacity.
For a while, things were looking up: emissions decreased, although very slightly, from 2014 through 2016, and coal emissions, in particular, went down. But now that progress appears to be in reverse. China’s inventory of coal plants averages 12 years old with a total lifespan of 40 years. Unless something changes, we can expect growing emissions from China.
4. Nigeria
Bayelsa State Governor, Mr. Dickson recently lamented the environmental damage in the Niger Delta. He said the region suffers from some 335,000 barrels of oil spills annually, worth about $20 million, as against only 35,000 barrels in the United States. Bayelsa accounts for forty percent of Nigeria’s oil wealth and hosts the operations of all the major multinational oil companies. Whether these numbers are anywhere near accurate is difficult to say as the government suppresses details of oil spills. While some of the leaks are likely due to inadequate maintenance and are the fault of the oil companies, most seem to be due to thieves drilling into oil lines to steal oil and gasoline, and militants blowing up pipelines and other facilities for political ends.
Numerous studies have shown that oil leaks extract a significant toll on the residents of the oil-producing regions. A 2011 United Nations Environment report disclosed that life expectancy in the Niger Delta is around ten years lower than the national average.
5. Venezuela
The situation continues to deteriorate, and last week saw the second and then a third significant blackout. The second closed down the country’s primary oil export terminal for three days. Exports did not take place for at least seven days during March which is likely to result in a significant drop in export levels from the 920,000 b/d that were exported in January. The four oil upgrading facilities in the Orinoco Belt, which can process some 700,000 b/d of very heavy Orinoco crude for shipment, were shut down for a second time.
The Petropiar upgrader, partly-owned by Chevron, and the Petromonagas facility, in which Rosneft has a minority stake, never regained full capacity after the March 7 blackout. The other two upgraders, Petrocedeno, partly-owned by Total and Equinor, and Petrosanfelix, which is fully-owned by PDVSA, halted operations after the power outage on Monday. There is no word on the current status of these facilities but should the outages last much longer Venezuela is going to be exporting very little oil in the weeks ahead.
The Venezuelan electrical grid has become so unstable that periodic power shortages are expected to continue indefinitely.
There was little political movement in the country last week. Moscow flew in two planeloads of what are thought to be troops. These soldiers could be a deterrent against a US invasion or simply be providing added security for President Maduro in the wake of threats to oust his government.
President Maduro decided to allow international aid from the Red Cross into the country, his first admission that Venezuela is suffering from an economic collapse. At a news conference in Caracas on Friday, Francesco Rocca, president of the International Federation of Red Cross and Red Crescent Societies, said the agency had received permission to start relief efforts from both the government and the opposition. The government didn’t comment on the announcement from Mr. Rocca, who said the agency would begin delivering medical supplies within 15 days to benefit some 650,000 people. The population of Venezuela currently is 31.3 million, most of whom are near starvation or at least very hungry.
To make matters worse, the US has instructed oil trading houses and refiners around the world to cut dealings with Venezuela further or face sanctions themselves, even if the trades are not prohibited by published US sanctions. Moreover, President Trump is considering imposing sanctions on companies from other countries that do business with Venezuela.
6. The Briefs (selections rom the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
World fleet MPG gains slowing: The improvement in fuel economy of cars and other light-duty vehicles around the world has slowed down in recent years. After improving by an average of 1.7% per year for more than a decade, fuel economy gained just 0.2% a year in advanced economies between 2015 and 2017. Twenty-seven countries, including Sweden, Canada and the United Kingdom, saw their fleet fuel economy stagnate or worsen.
European primary gas demand fell 1.9% to 599 Bcm in 2018, while renewable power generation grew 8.5% to 1,462 TWh, the IEA said in a report Tuesday. The figures reveal how renewables are displacing both coal and gas in European power generation, in contrast to the US and China, where gas demand climbed sharply on coal-to-gas switching. (3/26)
The European Parliament has approved EU emission performance standards for new cars and vans by 2030, intended to cut oil use in road transport and promote electric vehicles. The standards require new cars to emit 37.5% less CO2 on average and new vans 31% less CO2 on average compared with 2021 and reflect the EU’s increasing efforts to cut both its oil imports and transport emissions. The cuts are above the 30% the European Commission originally proposed November 2017 for both new cars and new vans. (3/28)
Egyptian LNG: After more than a decade of uncertainty for Egypt’s natural gas sector, leading even to importing LNG for years, Cairo is heading to a much brighter gas future. Two weeks ago, Egypt re-joined the ranks of global LNG exporters when its state gas company EGAS tendered to sell four cargoes of LNG for loading in April from the Idku liquefaction plant on the Mediterranean coast. (3/28)
In Algeria, protesters are demanding the resignation of President Bouteflika. Estimates say crowds in the capital, Algiers, reached a million. It is the sixth successive Friday of mass anti-government protests in the country. (3/30)
Pickups for China: While China may be the world’s largest market for electric vehicle sales, Chinese car buyers have a new love affair: pickup trucks. As in the U.S., pickups are ideal for construction, farm, and maintenance companies — but consumers find them very appealing for the horsepower and cargo capacity. The world’s largest new vehicle sales market saw its numbers fall for the first time last year since the 1990s, but pickups sales grew 10 percent to about 452,000 units sold during that time. (3/28)
South America vehicular fuels: Meeting in Brazil this week, auto executives from Toyota to GM talked up traditional fuel sources like ethanol, natural gas, and diesel, underlining how South America’s protected auto market is likely to resist a broader global move toward electric vehicles for years to come. (3/27)
Mexico net oil importer: For the first time in more than 50 years, and according to multiple data sources, Mexico has become a net importer of oil, in part due to overreliance on its legacy super-giant field Canterell. This is undoubtedly bad news for the Mexican government as it has relied upon its oil revenues to fund a large percentage of its public spending. (3/30)
The Mexican subsidiary of US railroad operator Kansas City Southern expects its gasoline transport business to grow at least 15 percent by volume this year, and possibly much more, a senior executive said on Tuesday. Jose Zozaya, president of the Mexican unit, said the railway is being approached by new fuel importers, beyond existing clients that already supply their own retail gas stations in Mexico like U.S.-based ExxonMobil Corp and France’s Total SA. (3/27)
In Canada, two years after an M&A boom driven by the exit of several oil majors from the oil sands, sellers of oil and gas assets are having trouble finding buyers. With persistent uncertainty about the future of Alberta’s crude oil pipeline network, sluggish capital markets, and high debt levels among potential buyers, the apparent shunning is only to be expected. The pipeline problem seems to be the biggest. (3/28)
Keystone pipeline: President Donald Trump signed a permit on Friday granting permission for TransCanada Corp to build the long-delayed Keystone pipeline at the U.S.-Canada border for the importation of oil from Canada. The $8 billion pipeline, which would carry 800,000 barrels per day of oil from Canada’s oil sands to refineries along the US Gulf of Mexico, has been held up in US courts. But the hotly contested pipeline expansion, meant to carry oil from Alberta to Nebraska, still faces hurdles more than a decade after it was first proposed, including a state-level challenge that could complicate its completion. (3/30)
The US oil rig count fell by 8 to reach 816 while gas rigs declined by 2 to reach 190, according to the Baker Hughes weekly report. The total number of active oil and gas drilling rigs fell by 10 rigs to 1,006, up just 13 from last year’s total. Compared to last year at this time, oil rigs are up 19 while gas rigs are down four. (3/30)
Oil exports: The US Gulf Coast is set to become a net crude oil exporting region for the first time on a quarterly basis, signaling a shift in global oil flows that has been in the making for a while. While there was one VLCC loading at a Gulf Coast port every six days in 2017, last year this rose to almost four VLCCs every six days. During the first 11 weeks of 2019, the total number of VLCCs loading at the Gulf Coast increased to five per week, with the average daily amount of crude flowing out of the US at 3.6 million barrels. Most of this is going to Asia. (3/28)
Citgo Petroleum, the U.S.-based unit of Venezuelan state-run oil firm PDVSA, said on Thursday it raised $1.2 billion through a five-year term loan to cover operating expenses and to refinance existing debt. Citgo said it settled a $320 million accounts receivable securitization facility and a $900 million revolving credit line. The financing would help Citgo fund its operations following US sanctions and its split from the parent company. (3/29)
In Houston’s Ship Channel, the US Coast Guard is working to set up a “locking system” in areas where water was contaminated with significant amounts of benzene after a fire at the Intercontinental Terminals Co. tank farm and begin allowing ships out of Carpenters Bayou, the Old River and Jacinto Port. (3/30)
Colorado’s coming drilling restrictions: Colorado’s state legislature is one step away from stiffening drilling regulations after years of conflict. While a ballot initiative to tighten drilling regulations was defeated during last November’s election by a well-funded industry campaign, the new Democratic majorities in the state legislatures are poised to pass legislation that expand existing limits on drilling. Going forward, the state’s oil and gas commission will likely be forced to put more emphasis on health and safety issues such as proximity of drilling rigs to occupied structures. (3/30)
Alaska pipeline progress: Technical teams from the Alaska Gasline Development Corp. (AGDC) and supermajors BP and ExxonMobil will meet next week in Houston to begin a review of the proposed $43 billion Alaska LNG project in an effort to find potential cost reductions so the massive capex project can move forward, Tim Fitzpatrick, an AGDC spokesman said on Tuesday. Discussions will begin on April 2 and last for most of the month. (3/29)
Ethanol shortage: Portland, Oregon, rack gasoline has jumped more than 33 cents since March 12 on ethanol shortages tied to the recent “bomb cyclone” in the US Midwest that set off flooding and interrupted rail movement of ethanol. (3/29)
Ethanol fast-track: After President Donald Trump promised Iowa voters he would unleash high-ethanol gasoline, his administration fast-tracked a plan to lift summertime restrictions on the fuel, forgoing studies of its potential price tag and hastily ending a review of the measure. (3/29)
US coal inventories in the power sector were at a 13-year low of 99.2 million st at the end of January, down from 102.79 million st after December and the lowest since stockpiles were at 98.19 million st after September 2005. The January total was down 34.3% from the five-year average. (3/28)
Cross-over energy suppliers: Ten years ago, you knew where you stood with your energy suppliers. Oil companies sold road fuel, while utilities supplied electricity and gas. Today, those old lines of demarcation are blurring. Utilities can fill up your car and oil companies want to keep your lights on. Technological progress and the threat of climate change are forcing both oil companies and utilities to rethink their strategies and are pushing them into each other’s territory. On Sunday Royal Dutch Shell, one of the world’s largest oil and gas companies announced that its First Utility retail power business would be rebranded as Shell Energy, with 700,000 households switched to renewable power. (3/26)
Methane from wind power: German utility Uniper has started producing methane gas derived from wind power and feeding it into gas pipeline networks at its Falkenhagen site as the country seeks wider uses for renewable energy. The step, part of the European energy project called STORE&GO, demonstrates that it is feasible to produce entirely green energy with qualities identical to natural gas. (3/27)
Solar deal: Kirkbi, the family holding company behind toy maker Lego, said on Friday it had agreed to buy a majority stake in Enerparc Inc., a US affiliate of German solar developer, Enerparc AG. (3/29)
Italy’s EV king? Enel, the Italian electricity group that by some measures holds the title of the world’s largest electric utility, last week highlighted the rapid growth in its network of electric car charging points. By the end of 2018 it had installed 49,000 worldwide – up 63 percent during the year. (3/26)
Electric aviation technology company magniX and Harbour Air, North America’s largest seaplane airline, announced a partnership to transform Harbour Air seaplanes into an all-electric commercial fleet powered by the magni500, a 560 kW (751 shp) all-electric motor that delivers 2,814 N·m of torque. Operating 12 routes between hubs such as Seattle and Vancouver and across the Pacific Northwest, Harbour Air transports more than 500,000 passengers on 30,000 commercial flights each year. (3/27)
Mandatory vehicle safety technologies: The European Parliament, Council and Commission (the EU institutions) reached a provisional political agreement on the revised General Safety Regulation. As of 2022 a suite of 15 new safety technologies will become mandatory in European vehicles to protect passengers, pedestrians and cyclists. The new mandatory safety features include: For cars, vans, trucks and buses: warning of driver drowsiness and distraction (e.g. smartphone use while driving); intelligent speed assistance (ISA); reversing safety with camera or sensors; and data recorder in case of an accident (“black box”). (3/28)
Long time no see, here! Thought you gave up farming.
I will be posting a lot once I get the warm weather crops into the ground.
There was light snow in western Massachusetts today.
My tomato and pepper seedlings are in the garage for protection.
Take care,
sumi
US Oil Exploration Drops by 95 Percent
By Philippe Gauthier, originally published by Resilience.org
May 3, 2019
It is well known that oil discoveries are in continuous decline worldwide in spite of ever-increasing investments. What is less known, however, is that spending on oil exploration is fast dropping in the United States. Exploratory drilling has been decreasing year after year and now stands at only five percent of its 1981 peak. In other words, once the currently producing shale oil wells are gone, there won’t be much to take their place.
According to figures derived from US Energy Information Agency (EIA) data by French oil geologist Jean Laherrère, oil exploration has already peaked twice in the United States. The first time was in the mid-1950s, with just over 16,000 wells drilled in a single year. The second major peak dates back to 1981, with 17,573 exploration wells. This number fell to only 847 in 2017.
Another even more revealing phenomenon is the decrease in NFWs. New field wildcats are exploration wells drilled in areas that have never produced oil, as opposed to wells drilled simply to help better delineate already known oil sectors (shown as red and greenlines in the graph). NFWs also declined by 95 percent, from 9,151 in 1981 to just 450 in 2017. According to Laherrère, this means that the United States have been almost entirely explored for oil and gas since 1859 and that few sites are worth drilling anymore. “There are only a few unexplored areas left offshore”, he notes.
In comparison, the number of operating wells (used to pump oil from previously known fields) was 646,626 in 1985, 597,281 in 2014, and 560,996 in 2017. However, nearly 400,000 of these wells are very old and produce at a marginal rate – fewer than 15 barrels a day and sometimes as little as one. They are described as marginal wells in the graph above.
It should be noted that the number of operating wells – a figure sometimes used to suggest that the oil industry is still running strong – does not account for this sharp decrease in exploration. Once shale oil production starts to decline – and Laherrère expects this to happen within a couple of years – there will remain few reserves to support US production.
Source: Jean Laherrère, Updated US primary energy in quad (April 30, 2019)
https://aspofrance.files.wordpress.com/2019/04/updateduspe2019-3.pdf
PUMPED DRY: The Global Crisis of Vanishing Groundwater-FULL VIDEO
Declining levels in rivers, dams spark water crisis fears
The CWC data also shows that, except the Indus, the Narmada, and the west-bound rivers of the south, the water level in all the river basins is less than the average of the last 10 years
india Updated: Apr 29, 2019 07:12 IST
Chetan Chauhan
Hindustan Times, New Delhi
According to the India Meteorological Department (IMD), the pre-monsoon rainfall from March to April — critical to agriculture in several parts of the country — has recorded a 27% deficit. An analysis by scientists at the Indian Institute of Technology, Gandhinagar, suggests that about half of the country is in the grip of a drought.(AP)
https://tinyurl.com/y3q8u68x
Replacing diesel tractors with horses or oxen – what will that be like?
http://energyskeptic.com/2019/replacing-diesel-tractors-with-horses-or-oxen-what-will-that-be-like/?fbclid=IwAR19QVUX5x_yXQktd71OM-OdGfqlm-2qCaTvhhNcZV9WCuS0KIkKJbr8QeA
'It's a groundswell': the farmers fighting to save the Earth's soil
Matthew Taylor
Wed 24 Apr 2019
John Cherry turned to conservation agriculture eight years ago, and says his costs have plummeted while yields remain high. Photograph: David Levene/The Guardian
https://tinyurl.com/y29dvetf
Soil Restoration: 5 Core Principles
October 17, 2017 in Build Soil, Cover Crops, Eco-Farming, Grow Crops, Livestock, Soil Fertility, Soil Life,
https://www.ecofarmingdaily.com/soil-restoration-5-core-principles/?fbclid=IwAR2XQhq_nWuJCtp1BjLJ4EqpcRZ992Gr6VduqkaAnHxIRQqByOB_u7o3WT0&cn-reloaded=1
Conclusion
All food and fiber producers — whether grain, beef, milk, lamb, wool, cotton, sugar, nuts, fruit, vegetables, flowers, hay, silage, or timber — are first and foremost light farmers.
Since the Industrial Revolution, human activities have sadly resulted in significantly less photosynthetic capacity due to the reduced area of green groundcover on the Earth’s surface. Human activity has also impacted the photosynthetic rate of the groundcover that remains.
Our role, in the community of living things of which we are part, is to ensure that the way we manage green plants results in as much light energy as possible being transferred to — and maintained in — the soil battery as stable soil carbon. Increasing the level of soil carbon improves farm productivity, restores landscape function, reduces the impact of anthropogenic emissions, and increases resilience to climatic variability.
It is not so much a matter of how much carbon can be sequestered by any particular method in any particular place, but rather how much soil is sequestering carbon. If all agricultural, garden, and public lands were a net sink for carbon, we could easily reduce enough CO2 to counter emissions from the burning of fossil fuels.
Everyone benefits when soils are a net carbon sink. Through our food choices and farming and gardening practices we all have the opportunity to influence how soil is managed. Profitable agriculture, nutrient-dense food, clean water, and vibrant communities can be ours… if that is what we choose.
Soil amendment for the health of your garden using these three nutrients…
By Desiree Rose
If you want to ensure the longevity of your garden beds, soil amendment is crucial. Ideally, if you’re keeping up with cover cropping and crop rotation you won’t need to do soil amendment too often. However, it is inevitable! Some common reasons to amend your soil are:
You’ve tested your soil pH and it’s come back extremely acidic or basic (recommended pH 6.5-7.3),
You’re experiencing vegetable diseases and/or lack of fruiting,
You’re looking for materials that will enhance aeration, structure, & moisture retention, or
You desire a healthier environment for beneficial insects to thrive.
When do I amend my soil?
Regardless of whether you’re amending existing or new beds, a general rule of thumb is to add ? material to your existing ? topsoil. The best times for soil amendment are a week prior to seeding, ie: before your spring planting (January/February) and before your autumn planting (August/September).
How much amendment do I add?
Please keep in mind that adding MORE amendment than necessary does NOT mean your soil will be better off. Adding the recommended doses of soil amendment is crucial to a balanced soil ecosystem.
Top three nutrients to amend your soil.
The top three nutrients to amend your soil are Nitrogen (N), Phosphorus (P), and Potassium (K).
These minerals are the most heavily used by plants and thus, will most commonly be depleted from your soil.
#1- Nitrogen (N):
Nitrogen is a nutrient that promotes strong stem and leaf growth, as well as the production of amino acids and proteins. Some examples of soil amendments that are high in Nitrogen include:
Fish emulsion,
Horse & goat manure,
Mulch & aged bark,
Cottonseed,
Seabird guano,
Feather meal,
Blood meal,
Alfalfa meal, &
Cover crops such as rye grass, oats, and beans.
*Note: It’s recommended to not over fertilize with Nitrogen soil amendments going into the winter as low light and cool soil temperatures decrease Nitrogen uptake.
#2- Phosphorus (P):
Phosphorus is a nutrient that promotes flower, fruit, & root growth. It is also beneficial to help with disease resistance. Some examples of amendments that are high in Phosphorus include:
Ground rock phosphate,
Fish emulsion,
Kelp,
Happy Frog,
Bat guano, &
Bone meal.
#3- Potassium (K):
Potassium is a nutrient that promotes the overall health of a plant. It also helps regulate water retention and aeration within the soil ecosystem. Some examples of amendments that are high in Potassium include:
Kelp,
Seaweed,
Fermented banana peel and water spray,
Wood ashes,
Coffee grounds, &
Bat guano.
Soil amendments for air and moisture balance:
Vermicompost (provides moisture retention and has a complete nutrition composition),
Organic Cotton Burr or Cotton Boll (is a soil conditioner and provides aeration & disease prevention),
Perlite (provides moisture retention and proper drainage),
Compost (provides moisture retention and has a complete nutrition composition), &
Coconut coir (helps with moisture retention).
Soil amendments for pH balance:
Raise pH: oyster shells, lime, diatomite rock
Lower pH: sulfer
Soil amendments for an overall nutrient boost:
Biochar (is also high in carbon),
Egg shells,
Azomite, &
Alfalfa meal (is also a compost catalyst).
Desiree Rose is a gardener, content developer, artist, and embodiment coach. With a degree in Resiliency Leadership and Environmental Education, she’s had the opportunity to study intensively under many thought-leaders in the fields of Environmental Agroforestry, Women’s Embodiment, Ayurveda, Astrology, Life-Coaching, Curriculum Design, and Biodynamic Beekeeping. When she’s not tending the gardens at Growing Spaces, she can be found rock climbing, highlining, and soaking in the hot springs in southwest Colorado. Find her latest projects at http://www.womb-beeing.com
REPORT: Clean Energy Must Not Rely on Dirty Mining
New research exposes extent of mineral demand for clean technologies
FOR IMMEDIATE RELEASE April 17, 2019
Earthworks | UTS ISF
https://earthworks.org/media-releases/report-clean-energy-must-not-rely-on-dirty-mining/?fbclid=IwAR1iZxeSaUiBOeL9QBpE3CgwYqHxAA7n9PMg5ERKxEVdxCwvPgsOj5F_OAA
I was just about to post this one. Posted segments and two charts!
"It shows that with no new investment, global oil production — including all unconventional sources — will drop by 50% by 2025 (Figure 1). That means that the global oil supply crunch is likely to happen already in the next five to six years and not in decades, as many fossil fuel companies hope. The global annual oil production is set to decline by approximately six million barrels per day starting in 2020. That means in the coming years the provision of energy related to oil will reduce annually by an amount equal to the total energy demand of Germany in 2014."
Figure 1: Oil production with no new investment from 2018 and demand in the New Policies and Sustainable Development scenarios. Source: World Energy Outlook 2018
Peak oil has been constantly underestimated by media, politics, and companies alike. Energy Watch Group was among the first to warn about it in 2008 in its study finding that the global oil supply is likely to dramatically decrease by 2020.
Instead of offering solutions in line with the Paris Climate Agreement, the IEA recommends “continued investment in oil and gas supply” in line with its policy, constantly overestimating the growth potential of fossil fuels (see the EWG analyses of the IEAs misleading scenarios on Energy Watch Group website).
New investments would be needed due to declining availability of oil at current price levels. But, the immense investments, undertaken since the early 2000s to find new oilfields, have been unsuccessful (Figure 2). On the contrary, the number of oil discoveries have fallen to a historic low.
Figure 2: Oil Finds at Lowest Since 1952. Source: Wood Mackenzie, Bloomberg.
By 2014, the oil industry started to roll back investments and rebought their own shares on a large scale. Ever since, the industry has been unwilling to scale up investments again.
The expected expansion of unconventional oil production in the USA will not be able to close the growing gap. Furthermore, within the last years, over six billion US dollars were divested from the fossil fuel energy industry. With an increasing number of investment funds, banks, countries, and companies divesting from fossil fuels, this number is expected to further grow within the next years.
Ghawar vs. Permian Basin: Is There Even a Comparison?
Trent Jacobs, JPT Digital Editor | 16 April 2019
Working on the rig floor in Texas where some see production starting to rival that of Saudi Arabia’s most prolific oil field. Source: Getty Images
https://www.spe.org/en/jpt/jpt-article-detail/?art=5377&fbclid=IwAR3zBrN9MHqEa45I491Tomd_65DNgoAGyByakNhCm7EqMKu9dvWQgqygmFU
Best Soil For Rasied Garden Bed
Watch as I show you what I do to get my raised garden beds ready for a new planting season. The soil mix is made up of locally made compost, worm castings, coconut coir and Azomite rock dust. The compost I use is a compost blend made by a local company called Western Organics 602-565-7045 Tell them you.
There are too many negative natural resource trends and these trends will be accentuated from other sources for herd thinning. "Civilized life" got out of hand pillaging the earth - air, soil and oceans. Your entire thesis seems plausible. Thanks, HH!
sumi
THE COMING MIDDLE EAST OIL CRISIS: The Collapse Of Net Oil Exports
Posted by SRSrocco in Energy, News on April 11, 2019
https://srsroccoreport.com/middle-east-oil-time-bomb-collapse-of-net-oil-exports/?fbclid=IwAR0yl2sNZRCIBG1ZmYRxMLd4aCBKAjwESj_Jy6IEDxSUR-LZfi5pJCdpx6c
The Middle East is heading for a crisis in its oil industry. Unfortunately, the market doesn’t realize there is any danger on the horizon because it mainly focuses on how much oil the Middle East is producing rather than its exports. You see, it doesn’t really matter how much oil a country produces but rather the amount of its net oil exports.
A perfect example of this is Mexico. As I mentioned in a recent article, NEXT OIL DOMINO TO FALL? Mexico Becomes A Net Oil Importer, Mexico is now a net importer of oil for the first time in more than 50 years. Furthermore, the IEA – International Energy Agency, published in their newest OMR Report that Mexico is forecasted to lose another 170,000 barrels per day of oil production in 2019. Thus, this is terrible news for the United States southern neighbor as it will have to import even more oil to satisfy its domestic consumption.
Now, when we think of the Middle East, we are mostly concerned with its oil production. However, the Middle Eastern countries, just like Mexico, have been increasing their domestic consumption, quite considerably, over the past 40+ years. How much… well, let’s take a look. Since 2000, total Middle East domestic oil consumption jumped from 5.1 million barrels per day (mbd) to 9.3 mbd in 2017:
As we can see, while Middle East oil production increased by 7.9 mbd from 2000 to 2017, domestic consumption expanded by 4.2 mbd. This means that more than 50% of the Middle East’s production growth during this period was absorbed by domestic use. The next chart shows how the changes in the regions oil production and consumption impacted net oil exports.
So, after the Middle East spent hundreds of billions on capital expenditures to increase its oil production by nearly 8 mbd, its citizens consumed more than half of that amount. Thus, the increase in Middle East net oil exports since 2000 was only 3.7 mbd.
Now, if we look over a more extended period, the results are even worse. According to the data in BP’s 2018 Statistical Review, Middle East oil consumption surged to 9.3 mbd in 2017 from 1.3 mbd in 1975:
While the region’s domestic oil consumption increased by 8 mbd (1975-2017), total production increased by nearly 12 mbd:
The significant decline in Middle East oil production during the early 1980s was due to the significant cut in supply stemming from the global recession. World oil demand fell considerably from 1980 to 1984 while more oil supply came online. If we subtract Middle East consumption from production this is the following result:
Since 1975, Middle East net oil exports have only increased by 4 mbd. The huge drop in the Middle East net oil exports during the early 1980s was temporary, but domestic consumption continued to grow and will become more of a factor in the region as oil production peaks and declines. If we go back and look at the Middle East oil consumption chart above, we will notice that domestic oil demand was not impacted by the global recession in 2008-2010. Interestingly, overall Middle East oil consumption increased by 1 mbd from 2007 to 2010.
So, the real danger for the Middle East will occur when oil production peaks and declines while domestic consumption continues to increase. This will be a double-edged sword for the Middle Eastern Governments as they will be forced to cut public spending as oil revenues fall.
Peak Oil Review 25 March 2019
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2019-03-26/peak-oil-review-25-march-2019/
Quote of the Week
“This [Exxon] is the company that denied the [climate] science, despite knowing the damage their oil exploitation was causing; which funded campaigns to block action on climate and now refuses to face up to its environmental crimes by attending today’s hearing. We cannot allow the lobbyists from such corporations free access to the corridors of the European parliament. We must remove their badges immediately.”
Molly Scott Cato, member of EU parliament
1. Oil and the Global Economy
Prices climbed for the first three trading days last week on the perception that oil supplies were tightening due to the OPEC+ cuts, the US sanctions on Iran and Venezuela, and a 9.6-million-barrel decline in US crude stocks. Prices in London closed on Wednesday at $68.50 — a four-month high. However, market sentiments changed on Thursday and Friday as fears of an economic slowdown hit the equity and oil markets. Signals from the Federal Reserve that there may not be any more interest rate increases this year contributed to the idea that harder economic times are ahead. A report on Friday showed factory output in the eurozone fell in March at the fastest pace in nearly six years, while US manufacturing activity slipped to its lowest level in almost two years.
Evidence continues to accumulate that there is a significant paradigm shift underway in the US shale oil industry which is generally acknowledged as key to future growth of the global oil supply. US shale has never lived up to its backers’ expectations that it would someday be highly profitable. After a decade of steady losses by many shale oil drillers, we are seeing the financing of unprofitable firms drying up, forcing them to cut back on plans to increase production. The US rig count has dropped for the last five weeks to 1,016 rigs.
At the same time the smaller drillers, who started the shale oil revolution, are running into a barrier to further growth, they are slowly selling out to the wealthy international oil companies. The latter claim that their superior technology and integrated, larger scale operations can be profitable – at least in the Permian Basin. Conoco and Exxon say they can increase production in the Permian by millions of barrels per day over the next five years so that global oil shortages are unlikely to develop in this period. There are, of course, those who say the major oil companies will not be able to increase and sustain production by as much as they say due to the geology of shale oil which is only profitable in a limited number of locations and depletes so rapidly that constant drilling is required to stay even.
The success of the major oil companies, notably Exxon and Conoco, in the Permian Basin during the next few years is shaping up to be a vital issue in determining how long global oil supplies can continue to grow.
The OPEC Production Cut: The cartel+ canceled its planned meeting in April and will decide instead whether to extend output cuts at a meeting on June 25-26. This delay will allow time to assess the impact of the US sanctions on Iran and the crisis in Venezuela. Saudi Arabia’s energy minister said the market still was looking oversupplied, but that April would be too early for any decision on output policy. The minister also said that he was confident that OPEC and its partners would reach full compliance with the announced cut, and even exceed it, in weeks to come.
The United Arab Emirates’ energy minister said on Wednesday that he expects OPEC to finalize the long-term cooperation charter with its non-OPEC partners in June. The issue of a formal OPEC+ pact has been around for some time, but Moscow has preferred that the alliance continue with ad hoc production agreements as necessary. Including Russia and its oil-producing allies into the OPEC agreement, however, would give the organization more clout in dealing with importing countries.
US Shale Oil Production: The headline of the week reads: “Oil majors rush to dominate US shale as independents scale back.” The story goes on to describe how Exxon is building a massive shale oil project that its executives boast will allow it to ride out the industry’s boom-and-bust cycles. According to Drillinginfo, the oil majors have spent $10 billion buying acreage in the Permian since early 2017 and currently have 75 drilling rigs in operation, up from 31 in 2017.
Exxon’s CEO Darren Woods recently said Exxon would change “the way that game is played” in shale. Its size and businesses could allow Exxon to earn double-digit percentage returns in the Permian even if oil prices crashed to below $35 a barrel. The company’s 1.6 million acres in the basin means Exxon can treat its Permian operations as a “megaproject.”
As integrated firms, Exxon and the other oil majors do not have to make a profit only by selling its newly produced oil as do the smaller drillers but can earn money from transportation, refining, and retailing oil products – hopefully offsetting any losses from drilling and producing oil in the Permian. According to IHS Markit, the Permian is to produce about 5.4 million b/d in 2023, up from 4.1 million today. Ostensibly, there is little doubt that the major oil companies have many advantages over the smaller drillers which could allow them to drill at lower costs and make money from shale oil other than just selling the crude.
A recent study of the profitability of the smaller oil companies shows that the stock of the average smaller company is down 43 percent since the October 2018 high. The study casts doubt on their prospects and ability to borrow money. While the oil majors are moving into the Permian, the bulk of US shale oil production still comes from small companies that are under financial stress and are cutting back on new drilling which in the case of shale oil means that production could start to fall.
The underlying issue is the geology of shale oil. Currently, the Eagle Ford and the Bakken are producing about 1.4 million b/d and are growing very slowly. The major oil companies are staying away from these basins and placing their bets on the Permian. A recent report on the Bakken shows that the basin produced 55 million barrels of water in December along with 40 million barrels of oil. The share of water coming from wells, some of which is natural and some injected during the fracking process, is growing as a percentage of the total liquid output from the Bakken’s wells. At an average cost of $4 a barrel to dispose of wastewater, the total estimated cost to dispose of Bakken wastewater now is over $2 billion a year. This situation obviously does not bode well for the future of the basin.
There are major changes underway for the US shale oil industry. Whether these changes result in higher production over the next five years or whether the shale oil boom which has added about 8.5 million b/d to US oil production will peak has yet to be seen.
2. The Middle East & North Africa
Iran: Tehran’s daily oil exports appear to have dropped in March to their lowest level this year. Shipments are thought to be averaging between 1.0 and 1.1 million b/d, according to Refinitiv Eikon data and three other companies that track Iranian exports. That’s lower than February when shipments were at least 1.3 million b/d. The situation may get worse if Washington stops giving waivers to importing countries. Numbers on Iranian exports should be taken with a grain of salt as Tehran has become expert in hiding its shipments. The Iranians recently sent several oil tankers to Asia using forged documents that indicated the oil was coming from Iraq, according to Reuters. There are reports of ship-to-ship transfers of Iranian oil at sea to hide the cargo’s origin.
The US granted waivers to eight of the major Iranian clients—including China and India—after it placed sanctions on Iran’s oil in the fourth quarter of 2018. The waivers are due to expire in six weeks, and there is much attention on whether they will be renewed. Iraq’s waiver, which was due to expire last week was extended another 90 days, but this waiver is mainly for imports of Iranian natural gas to run Iraqi power plants which would have trouble functioning without Iranian fuel.
Iranian President Rouhani launched four new development phases at the giant South Pars offshore gas field, which will add 110 million cubic meters to the daily output of the gas field. The expansion cost $11 billion. Petroleum Minister Zanganeh said South Pars would produce from 27 phases of development within a year and that production would reach more than 750 million cubic meters later this year. Iran’s total natural gas production currently is 841 million cubic meters daily, which should rise to 880 million cubic meters daily by next March and 950 million cubic meters daily in 2021.
Syria/Iraq: US sanctions have cut off Iranian oil shipments to Syria. Tehran has been unable to deliver oil to Syria since Jan. 2, according to maritime-data provider TankerTrackers.com. That compares with an average of 66,000 barrels a day in the last three months of 2018. Storage tanks are virtually empty in the port city of Baniyas, home to Syria’s largest oil refinery. Iranian crude exports to Syria have been vital to the country during the civil war, as Syrian domestic oil production dropped from 353,000 b/d in 2011 to 25,000 b/d in 2017, according to figures from BP. Moscow has been shipping oil products to Syria to keep the country functioning.
In Iraq, widespread flooding is threatening to shut down the 117,000 b/d Majnoon oil field and has already submerged thousands of acres of Basra farmland. Output at Majnoon has not been affected so far, but floodwaters have already reached four wellheads, and further breaches of a nearby dirt berm could put the field’s main facilities underwater.
OPEC’s February oil production data from Ron Patterson’s Peak Oil Barrel.
Saudi Arabia: The kingdom’s crude oil exports in January fell to 7.254 million b/d from 7.687 million b/d in December, according to official data released last week. Production in January was 10.2 million b/d down 400,000 b/d from December. Some 377,000 of crude was burned directly to produce electricity during January. Burning crude directly to generate electricity is a wasteful practice, and the government has been making an effort to switch to natural gas or even solar.
Libya: Crude oil production has recovered to 1.2 million b/d as the Sharara oil field is approaching its rated 330,000 b/d after being closed by militants for three months. The chairman of state-owned National Oil Corporation (NOC) says the country can increase output to 1.4 million b/d this year — “if the security situation remains stable.”
The NOC is working on initiatives to reignite Libya’s upstream sector by opening existing wells and oil processing facilities that have been shut down since the Gadhafi days. The NOC’s target, which is to reach a production capacity of 2.1 million b/d by 2021, hinges on Libya attracting foreign investment along with a significant improvement in the security situation.
OPEC’s February oil production data from Ron Patterson’s Peak Oil Barrel.
3. China
In the first two months of 2019, Chinese refineries processed 12.68 million b/d— the highest on record and a 6.1-percent increase compared to the same period last year, according to China’s customs data. The refiners are on course to process more than 13 million barrels of crude oil per day for the first time ever in the third quarter this year. Most of the processed crude came from imports of crude oil, which continued to increase this year compared to the same months of 2018. In February, China imported 10.23 million b/d, up 21.6 percent on the year. In January, imports were 10.03 million b/d, up 4.8 percent on the year.
Beijing has been increasing its refinery operations for several years now in an effort to dominate the Asian oil product markets. Large scale purchases of crude and modern efficient refineries give Chinese refiners an advantage against their traditional competitors. Zhejiang Petrochemical and Hengli Petrochemicals are each expected to have a new 400,000-b/d refineries up and running by the end of the third quarter this year.
If oil prices continue to climb, the next round of increases may largely depend on what happens between the US and Chinese trade negotiations. There have been conflicting reports in recent days. The two sides have gotten this far by hashing out the easy stuff. China agreed to buy more American energy and farm products, and the US delayed tariffs and signaled a desire to end them. But the hard issues are going to be difficult to overcome. These include intellectual property rights, access to the Chinese market for American firms, data-services, and other practices by the Chinese government that Washington views as unfair. President Trump said last week that the US expected to keep tariffs on Chinese goods in place for a “substantial period of time,” even after a deal. “We have to make sure that if we do the deal with China that China lives by the deal.”
4. Nigeria
The Kolmani River-II Well in northern Nigeria is progressing satisfactorily, with drilling of 6,700 feet so far. This exploratory well is being drilled in hopes of finding oil and gas in northern Nigeria. The target for the Kolmani River well is 14,200 feet and could be deeper depending on findings. Should substantial amounts of gas be found in the northern parts of the country, the government again is talking about building a 2000-kilometer pipeline through Niger and into Algeria and even Morocco where it could link to pipelines into Europe. Seven months ago the government said it was working with a Chinese consortium on financing a 614-kilometer pipeline from gas fields in southern Nigeria to Kaduna in the north.
As it has been for many years, the refining situation in Nigeria is in chaos with most refined products being imported at considerable cost for an oil-producing country. The heart of the problem is the lack of maintenance which eventually leaves refineries processing a fraction of their name-plate capacities and operating at a loss. Last week the government announced that it was planning to overhaul the two refineries at Port Harcourt which have a combined capacity of processing 210,000 b/d but have not had major overhauls for the last 19 years. There has been talk that progress on the new 650,000 b/d Dangote refinery, which is supposed to replace the existing refineries, is slipping. Plans to overhaul the Port Harcourt refineries which are 30 and 55 years old suggest that the government is hedging its bets on the Dangote project.
5. Venezuela
The electricity is back on in many parts of Venezuela, but the country is not out of trouble as yet. The country’s’ electric grid which depends on the Guri dam for 80 percent of its energy is in terrible condition and experts are expecting frequent and long-lasting power outages to continue. The second-tier effects of the power failures could be profound. In many areas, water service still isn’t back to normal, because there isn’t enough electricity to run the pumps and many are worried that there are no seeds and fertilizer to grow this year’s crops.
U.S. crude imports from Venezuela have dropped to zero, for the first time on record, preliminary data from the Energy Information Administration showed on Wednesday. Imports from Venezuela, historically one of the biggest suppliers of crude to the US, were about 587,000 b/d in late January. Venezuela’s principal Jose export terminal is back in operation and PDVSA says it may divert the oil that was going to the US to Russia for the lack of anywhere else to send it. Whether such a plan does much for its earnings has yet to be seen.
There is no word on the status of the three “upgraders” which are jointly operated by Venezuelan and foreign personnel. These devices process the very heavy Orinoco oil into a lighter substance which can be exported. At last word, only one of the three upgraders were working and there was a severe shortage of imported solvent to mix with the heavy oil.
6. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
The new low-sulfur fuel regulations by the International Maritime Organization (IMO) that begin January 1, 2020, limit the sulfur content in marine fuel to 0.5 percent from 3.5 percent currently. As 2020 draws nearer, oil refiners around the world, from Europe to the US to Asia, are preparing to capture as high refinery margins for distillates like diesel and marine gasoil as they can get. Some refiners have changed their maintenance schedules for 2019, with planned refinery stoppages heavily geared toward the spring in the first half of the year, leaving more operating refining capacity for the fall of 2019, when the 2020 ship fuel change will be imminent. (3/20)
In the EU, Exxon could lose its lobbying access to the European parliament after no company representative showed up at a hearing on climate change denial. A member of the European parliament from the Green party has already submitted a request to ban the company. (3/23)
In Israel, all the requirements needed for the start of Israeli gas exports to Egypt are not yet in place, with first flows now not expected until at least the middle of this year. US-based producer Noble Energy and its Israeli partner Delek Drilling — together with Egyptian-owned Sphinx EG — in September last year agreed to buy a 39% stake in the idled East Mediterranean Gas pipeline for $518 million as part of plans to use the pipeline in reverse for Israeli gas to flow to Egypt. At the time it was announced that exports would start “at the beginning of 2019” once the deal was completed. A little more work on the deal remains to be done. (3/23)
Sudan considers oil and gas exploration blocks offered by Egypt in the Red Sea’s Halayeb area as a direct intrusion into Sudanese territory, Saad al-Deen Hussein al-Bishri, minister of state at Khartoum’s oil ministry, was cited as saying. The Halayeb triangle, which is controlled by Egypt, has been claimed by Sudan since the 1950s. However, Cairo says it is Egyptian territory and it has long been a source of contention between the two neighbors. (3/21)
In Angola, a gasoline shortage in one of Africa’s leading oil producers means drivers in the capital Luanda have to form lengthy queues to fill up their tanks. The shortages are causing problems for those who drive for a living. (3/22)
Colombia has shelved two environmental licensing requests made by oil companies ConocoPhillips and Canacol Energy Ltd for fracking projects in northern Cesar province. Colombia does not yet allow hydraulic fracturing, but the government says use of the technique could nearly triple Colombia’s oil and gas reserves. An expert commission convened by the government to study non-conventional exploration methods has recommended strict monitoring of three pilot projects to determine whether the techniques should be widely used. The companies did not meet minimum conditions for the Piranga project, while the Plata project raised possible water protection concerns. (3/21)
The Mexican government plans to use money from a public income stabilization fund to help reduce the sizeable debt pile that state energy major Pemex has accumulated. Reuters reports, quoting the country’s deputy finance minister, that the fund is worth US$15.4 billion and the government plans to make it “counter cyclical.” (3/23)
Canada’s oil and gas rig count fell by 56 and is now 105, which is 56 fewer rigs than this time last year as Canada’s oil industry continues to face steep uphill battles over its constrained pipeline capacity that is necessary to get its heavy crude to market. (3/23)
Canadian natural gas producers have been going through a similar predicament to their oil-producing brethren–not enough takeaway capacity amid growing production, and as a result, plunging domestic prices. Last year, the annual average discount of Alberta natural gas benchmark AECO to the US Henry Hub benchmark was at its widest in nearly two decades—since 1999. (3/22)
The US oil rig count declined by nine in the week to March 22, bringing the total count down to 824, the lowest since April 2018, GE’s Baker Hughes said on Friday. That is the first time the rig count has declined for five weeks in a row since May 2016 when it fell for eight consecutive weeks. Gas rigs slipped by one to 192. (3/23)
A US judge has blocked oil drilling planned in Wyoming because the government failed to adequately consider its impact on global warming – a decision that could complicate President Donald Trump’s broader efforts to expand oil, gas and coal output on America’s public lands. (3/21)
More “solar oil”: BP is planning to start powering some of its operations in the United States with electricity produced by solar farms, Bloomberg reports, quoting the chief executive of an affiliate, Lightsource BP. The UK-based supermajor bought a 43-percent stake in Lightsource two years ago, committing to spend US$200 million on the company over a period of three years. (3/21)
SPR sales: The US Department of Energy has sold 4.32 million barrels of sweet crude from its Strategic Petroleum Reserve for a total of more than $285.7 million, an average of $66.14/b, according to documents posted to the agency’s website Thursday. (3/22)
Chemical fire/leaks: An earthen barrier holding chemicals that leaked from a massive petrochemical fire outside Houston breached on Friday, prompting restrictions on travel around the site and through a part of the busiest US oil export port. It was the third time this week that chemical releases from the plant prompted local travel restrictions. (3/23)
Natural gas in US storage facilities decreased 47 Bcf to 1.143 Tcf in the week that ended Friday, the US EIA reported Thursday. The withdrawal was smaller than the 87 Bcf pull reported during the corresponding week in 2018 as well as the five-year average draw of 56 Bcf. As a result, stocks were 315 Bcf, or 21.6%, under the year-ago level of 1.458 Tcf and 556 Bcf, or 32.7%, below the five-year average of 1.699 Tcf. (3/22)
Ethanol supply problem: Massive flooding in the US Midwest has knocked out roughly 13 percent of the nation’s ethanol production capacity, as plants in Nebraska, Iowa and South Dakota have been forced to shut down or scale back production following the devastation. With rail lines are washed out, and corn in storage flooded, production is dropping off, sending prices spiking in markets that buy the corn-based fuel. (3/22)
In California, a major battery storage project that would help the state replace three of its natural gas power plants may need to be scrapped as a result of PG&E Corp’s bankruptcy. The company is afraid it will not be able to line up financing for its 75-megawatt Hummingbird battery storage project. (3/23)
EV expansion: Ford is expanding its production capacity for the company’s next-generation battery electric vehicles at a second North American plant. Tied to the company’s $11.1-billion investment in global electric vehicles, Ford is expanding its BEV manufacturing footprint to its Flat Rock Assembly plant in southeast Michigan. (3/21)
General Motors Co. said Friday it will invest $300 million to build a new electric car domestically rather than outside the country, a decision that comes as President Trump has blasted the Detroit auto maker for its plans to close four US factories. The planned investment in an existing Michigan plant, GM said, is part of a broader commitment to spend $1.8 billion at its US manufacturing operations, adding 700 jobs in several states over the next three years. (3/23)
US carbon dioxide emissions from energy consumption will remain near current levels through 2050, according to projections in EIA’s Annual Energy Outlook 2019. Energy-related CO2 emissions generally follow energy consumption trends. In the US, emissions associated with the consumption of petroleum fuels—motor gasoline, distillate, jet fuel, and more—have consistently made up the largest portion of CO2emissions. In 2018, the transportation sector’s consumption accounted for 78% of US CO2 emissions from petroleum and more than one-third of all US energy-related CO2 emissions. (3/22)
New H2 twist: A Stanford-led team has developed a new electrolysis system to split seawater in hydrogen and oxygen. Their findings are published in an open-access paper in the Proceedings of the National Academy of Sciences. Existing water-splitting methods rely on highly purified water—a precious resource and costly to produce. Hongjie Dai and his research lab at Stanford University have developed a prototype that can generate hydrogen fuel from seawater. (3/20)
Saudis Threaten ‘Nuclear Option’ To Kill Petrodollar
By Nick Cunningham - Apr 07, 2019, 6:00 PM CDT
https://oilprice.com/Energy/Energy-General/Saudis-Threaten-Nuclear-Option-To-Kill-Petrodollar.html?fbclid=IwAR3xhCOn5ZvqwEtPtHtG4v8bbRDOYUrs_FKMnIvQe28f4ieT1ztcJOVeUU0
Energy Slaves: every American has somewhere between 200 and 8,000 energy slaves
Posted on April 15, 2014 by energyskeptic
http://energyskeptic.com/2014/energy-slaves/?fbclid=IwAR0d1PASE7EcFAES4AcLvJsJtkrWCHsbQqSj4LL42wd2f6cjV39jpkBw2Dw
California’s central valley aquifers may be gone in 2030s, Ogallala 2050-2070
Posted on April 6, 2019 by energyskeptic
http://energyskeptic.com/2019/californias-central-valley-aquifers-may-be-gone-in-2030s-ogallala-2050-2070/
The Rapid Decline Of The Natural World Is A Crisis Even Bigger Than Climate Change
A three-year UN-backed study from the Intergovernmental Science-Policy Platform On Biodiversity and Ecosystem Services has grim implications for the future of humanity.
By John Vidal
03/15/2019 05:45 am ET Updated Mar 16, 2019
https://www.huffpost.com/entry/nature-destruction-climate-change-world-biodiversity_n_5c49e78ce4b06ba6d3bb2d44?fbclid=IwAR3dWxfW5rOYDayj9LXcfOtIB_XkNPWIgclu52OnYULWuUovoF3tgDoyCnw
20 Unique & Fun Raised Garden Bed Ideas
by Jayne Leonard April 11, 2016
https://www.naturallivingideas.com/raised-garden-bed-ideas/?fbclid=IwAR0Ouhzq8UNA66_Np3mwngWjyUGsBv2cOUX1QuCXNQvmf5yfciUoHN1cnOc
NEXT OIL DOMINO TO FALL? Mexico Becomes A Net Oil Importer
Posted by SRSrocco in Energy, News on March 27, 2019
https://srsroccoreport.com/next-oil-domino-to-fall-mexico-becomes-a-net-oil-importer/?fbclid=IwAR2dc_oOYhdO-Az74V2mislSVOsRVm1wV3d3u9612eLmwqNDGryKFTNc1VQ
While Mexico suffered the bloodiest year of violent deaths in 2018, even bigger trouble may be ahead for the embattled country. For the first time in more than 50 years, Mexico has become a net importer of oil. This is undoubtedly bad news for the Mexican Government as it has relied upon its oil revenues to fund a large percentage of its public spending.
And, the majority of these revenues came from just one prolific oil field. After the discovery of the huge Cantarell Oil Field in the Gulf of Mexico in 1976, Mexico’s oil production surged from 894,000 barrels per day to a peak of 3.8 million barrels per day (mbd) in 2004. That year, Mexico’s net oil exports exceeded 1.8 mbd.
Unfortunately, the downturn of Mexico’s oil production was also due to the peak and decline of the Cantarell Oil Field, which topped out at 2.1 mbd in 2004 and is now below 135,000 barrels per day:
With the rapid decline in Cantarell’s oil production, Mexico’s net oil exports also plummeted from 1.8 mbd in 2004 to only 314,000 barrels per day in 2017. However, the situation for Mexico’s net oil exports continued to deteriorate in 2018 as its domestic oil supply fell to a new low at the end of the year.
According to several sources, the BP 2018 Statistical Review, IEA’s OMR Reports, and the EIA’s data on World Oil Production, Mexico became a net oil importer in November 2018:
I find it strange that this has not yet been mentioned in the news as it is a very critical factor for the future of Mexico. Now, I would like to qualify that the data I am using is accurate. I found Mexico’s total petroleum production and consumption data from the EIA, the U.S. Energy Information Agency’s World Oil Production Browser, the IEA’s, the International Energy Agency OMR Reports, and BP’s 2018 Statistical Review.
In just a little more than a year, Mexico’s net oil exports fell from 314,000 barrels per day to net imports of 90,000 barrels per day in December 2018. This next chart shows Mexico’s total oil supply versus consumption for each month in 2018:
Of course, we don’t know if Mexico will be able to increase production, but if we consider the disaster that is taking place at PEMEX, the country’s national oil company, I highly doubt domestic oil production will recover. Why? Well, let’s just say, PEMEX is on the verge of bankruptcy as the company published two troubling signs in its Q4 2018 Financial Report:
Falling Oil Production
Rising Long-Term Debt
According to PEMEX’s Q4 2018 Report, oil production fell from 1.90 mbd Q4 2017 to 1.76 mbd in Q4 2018. These figures are for oil production only and do not include NGPL (natural gas plant liquids) and refining gains. Which is why it doesn’t add up to the 1.94 mbd for December 2018 shown in the chart above.
Regardless, oil production continues to decline at PEMEX while it’s long-term debt reached a new record high of $96 billion last year:
So, even with all the additional capital expenditures, (shown by the massive increase in long-term debt), PEMEX was not able to prevent the inevitable decline of its domestic oil production. What happens to PEMEX when oil production really starts to decline?
Sadly, as domestic oil supply continues to decline, the Mexican Government will have lower oil revenues to support its public spending. I believe Mexico is likely one of the next OIL DOMINOS to fall… and it won’t be pretty.
I will be doing a more detailed update on PEMEX’s financial information when they release their next quarterly report.
Remember Peak Oil? It's back!
Lloyd Alter
April 5, 2019
https://www.treehugger.com/fossil-fuels/remember-peak-oil-its-back.html?fbclid=IwAR2BpauYdzcwlPBW7yL0_hiB1bh1jixC_0MhFapBQbkVE1P2pu9dA7oV81o
It seems that the biggest Saudi field is losing its punch.
Years ago we used to talk a lot about peak oil, the prediction made by M. King Hubbert that the easy oil was going to run out, that it was going to get harder and harder to find the stuff, and it was going to get more and more expensive to get out of the ground. Hubbert wrote in 1948: "How soon the decline may set in is not possible to say, Nevertheless the higher the peak to which the production curve rises, the sooner and sharper will be the decline."
According to the predictions made back in 2005, right about now the Saudis are running out and we are smack in the middle of confusion, heading for chaos. Of course we are not, we are flooded with fossil fuels, thanks to the fracking boom.
But according to Eric Reguly, writing in the Globe and Mail, there is trouble ahead, because that prediction about Saudi oil may not be that far off. He writes that the giant Ghawar field used to produce ten percent of the world's oil, five million barrels a day.
In fact, Ghawar is not as resilient as we were led to believe. We just found out that its output has fallen substantially since Aramco previously came clean on its reserves and production. If Ghawar is losing momentum fast, peak oil – remember that theory? – might be closer than we had thought. And Ghawar is just one of dozens of enormous conventional-oil reservoirs scattered around the planet that are in various stages of decline.
Those include the North Sea, Alaska's Prudhoe Bay, and Reguly reminds us that Mexico's Cantarell reservoir used to supply 2.1 million barrels a day and is now down to 135,000.
Problems with the strategy of bunching wells close together mean some of the more optimistic projections for oil production from shale regions may have to be lowered. https://t.co/LC29gXA1yj
— The Wall Street Journal (@WSJ) March 4, 2019
The US Permian shale basin now supplies 4.1 million barrels a day, but fracked wells run out pretty quickly, and the fracking companies are all losing money. Better sell that pickup truck; it may well cost a lot more to fill it. As Reguly concludes, the Ghawar field is indeed in trouble,"and if it does collapse, peak oil will come a bit sooner."
EXPORT LAND MODEL
Revisiting the Export Land Model [Pt 1]
http://peakoilmatters.com/2011/10/17/re-visiting-the-export-land-model-pt-1/?fbclid=IwAR2u4lng9yzeypZ89r6Q-uJqeHY5cT8ULQb1G4zWOHSq7wWgf6Ene4kdfJU
Revisiting the Export Land Model [Pt 2]
http://peakoilmatters.com/2011/10/24/re-visiting-the-export-land-model-pt-2/?fbclid=IwAR2xCrzpiAY8h6p6Im1zAKHOZEQFMbbdInai-58j4eV5rg5YQ2UPWn8zIYs
At our current pace it'll take 80 years to repair all the structurally deficient bridges in the US, a report finds
By Michelle Lou and Brandon Griggs, CNN
Updated 9:08 AM ET, Wed April 3, 2019
Bridge collapses on Tennessee interstate, injuring one
https://www.cnn.com/2019/04/02/us/deficient-bridge-report-2019-trnd/index.html?fbclid=IwAR2ukI3zc3Z3taCCW0U55j1buyasIA_mvMyHQ1A0oKXI8j5lTQM_KtUkOew
Energy Production & Changing Energy Sources
by Hannah Ritchie and Max Roser
https://ourworldindata.org/energy-production-and-changing-energy-sources
Aramco's Big Reveal: What We Learned About the Saudi Oil Giant
By Mohammed Sergie
April 1, 2019, 12:00 PM EDT Updated on April 2, 2019, 1:22 AM EDT
https://www.bloomberg.com/news/articles/2019-04-01/aramco-s-big-reveal-what-we-learned-about-the-saudi-oil-giant
The Biggest Saudi Oil Field Is Fading Faster Than Anyone Guessed
By Javier Blas
April 2, 2019, 7:34 AM EDT Updated on April 2, 2019, 11:28 AM EDT
https://www.bloomberg.com/news/articles/2019-04-02/saudi-aramco-reveals-sharp-output-drop-at-super-giant-oil-field?fbclid=IwAR2Z2BVYPlsPA4Z3TYmaW06wkVjYo_ajtJm71y-TGTyHyzZ4tjHBvySFIsw
*Ghawar can pump 3.8 million barrels a day, less than expected
*Bond prospectus give details of the kingdom’s largest fields
It was a state secret and the source of a kingdom’s riches. It was so important that U.S. military planners once debated how to seize it by force. For oil traders, it was a source of endless speculation.
Now the market finally knows: Ghawar in Saudi Arabia, the world’s largest conventional oil field, can produce a lot less than almost anyone believed.
When Saudi Aramco on Monday published its first ever profit figures since its nationalization nearly 40 years ago, it also lifted the veil of secrecy around its mega oil fields. The company’s bond prospectus revealed that Ghawar is able to pump a maximum of 3.8 million barrels a day -- well below the more than 5 million that had become conventional wisdom in the market.
“As Saudi’s largest field, a surprisingly low production capacity figure from Ghawar is the stand-out of the report,” said Virendra Chauhan, head of upstream at consultant Energy Aspects Ltd. in Singapore.
King of Oil
Saudi Arabia relies on a handful of mega-fields to sustain its 12 million b/d capacity
Source: Saudi Aramco bond prospectus
The Energy Information Administration, a U.S. government body that provides statistical information and often is used as a benchmark by the oil market, listed Ghawar’s production capacity at 5.8 million barrels a day in 2017. Aramco, in a presentation in Washington in 2004 when it tried to debunk the “peak oil” supply theories of the late U.S. oil banker Matt Simmons, also said the field was pumping more than 5 million barrels a day, and had been doing so since at least the previous decade.
In his book “Twilight in the Desert,” Simmons argued that Saudi Arabia would struggle to boost production due to the imminent depletion of Ghawar, among other factors. “Field-by-field production reports disappeared behind a wall of secrecy over two decades ago,” he wrote in his book in reference to Aramco’s nationalization.
The new details about Ghawar prove one of Simmons’s points but he missed other changes in technology that allowed Saudi Arabia -- and, more importantly, U.S. shale producers -- to boost output significantly, with global oil production yet to peak.
The prospectus offered no information about why Ghawar can produce today a quarter less than 15 years ago -- a significant reduction for any oil field. The report also didn’t say whether capacity would continue to decline at a similar rate in the future.
Aramco wasn’t immediately able to comment.
Lost Crown
The new maximum production rate for Ghawar means that the Permian in the U.S., which pumped 4.1 million barrels a day last month according to government data, is already the largest oil production basin. The comparison isn’t exact -- the Saudi field is a conventional reservoir, while the Permian is an unconventional shale formation -- yet it shows the shifting balance of power in the market.
Ghawar, which measures about 174 miles long -- or about the distance from New York to Baltimore -- is so important for Saudi Arabia because the field has “accounted for more than half of the total cumulative crude oil production in the kingdom,” according to the bond prospectus. The country has been pumping since the discovery of the Dammam No. 7 well in 1938.
On top of Ghawar, which was found in 1948 by an American geologist, Saudi Arabia relies heavily on two other mega-fields: Khurais, which was discovered in 1957, and can pump 1.45 million barrels a day, and Safaniyah, found in 1951 and still today the world’s largest offshore oil field with capacity of 1.3 million barrels a day. In total, Aramco operates 101 oil fields.
Saudi Aramco's Shaybah Oil Field
Flames burn off at an oil processing facility at Saudi Aramco’s Shaybah oil field.
Photographer: Simon Dawson/Bloomberg
The 470-page bond prospectus confirms that Saudi Aramco is able to pump a maximum of 12 million barrels a day -- as Riyadh has said for several years. The kingdom has access to another 500,000 barrels a day of output capacity in the so-called neutral zone shared with Kuwait. That area isn’t producing anything now due a political dispute with its neighbor.
While the prospectus confirmed the overall maximum production capacity, the split among fields is different to what the market had assumed. As a policy, Saudi Arabia keeps about 1 million to 2 million barrels a day of its capacity in reserve, using it only during wars, disruptions elsewhere or unusually strong demand. Saudi Arabia briefly pumped a record of more than 11 million barrels a day in late 2018.
“The company also uses this spare capacity as an alternative supply option in case of unplanned production outages at any field and to maintain its production levels during routine field maintenance,” Aramco said in its prospectus.
Costly Strategy
For Aramco, that’s a significant cost, as it has invested billions of dollars into facilities that aren’t regularly used. However, the company said the ability to tap its spare capacity also allows it to profit handsomely at times of market tightness, providing an extra $35.5 billion in revenue from 2013 to 2018. Last year, Saudi Energy Minister Khalid Al-Falih said maintaining this supply buffer costs about $2 billion a year.
Aramco also disclosed reserves at its top-five fields, revealing that some of them have shorter lifespans than previously thought. Ghawar, for example, has 48.2 billion barrels of oil left, which would last another 34 years at the maximum rate of production. Nonetheless, companies are often able to boost the reserves over time by deploying new techniques or technology.
In total, the kingdom has 226 billion barrels of reserves, enough for another 52 years of production at the maximum capacity of 12 million barrels a day.
The Saudis also told the world that their fields are aging better than expected, with “low depletion rates of 1 percent to 2 percent per year,” slower than the 5 percent decline some analysts suspected.
Yet, it also said that some of its reserves -- about a fifth of the total -- had been drilled so systematically over nearly a century that more than 40 percent of their oil has been already extracted, a considerable figure for an industry that usually struggles to recover more than half the barrels in place underground.
(Update with further details about Matt Simmons in sixth paragraph.)
Peak Oil Review: 18 March 2019
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2019-03-18/peak-oil-review-18-march-2019/
Quote of the Week
“Total open interest has fallen by twenty percent, as can be seen from the figure [below]. Swap dealer short positions have also contracted. The message is clear: producers are hedging less, and they are hedging less because they expect to produce less. The statistics point to a one to two-million-barrel decline in production from the frackers. Some but not all this loss may be made up by the increased activity of firms such as Exxon. In short, the growth in US oil output is about to be reversed.Philip Verleger, energy analyst
Graphic of the Week
1. Oil and the Global Economy
The struggle between a weakening global economy and the shrinking availability of oil supplies seems to be tipping in favor of the latter as oil prices slowly make their way higher. The electric power disruption in Venezuela has combined with the US sanctions on Iran and Venezuela and reports that the rapid increase in US shale oil production to add a bullish tone to the oil markets. Last week oil prices climbed $1-2 a barrel to close at $67 in London and $58 in New York. Last week a new EIA forecast cast doubt on the optimistic projections for US shale oil production which was slated to increase from 11.9 million b/d at the end of 2018 to 13.5 million by the end of 2020.
For the last ten years, the US shale oil boom has been primarily financed by multi-billion-dollar loans and stock offerings. As is well known, most firms in the shale oil industry have never made money despite the rapid increase in production and it now seems that the lenders that the sector has been depending on have had enough. Data on the issuance of debt and equity by shale firms and their positions in futures markets are providing an indicator of their future production, and these are pointing to a significant decline in output in the next two years. A new analysis suggests that US shale oil production may fall in the next two years to some 11.3- 11.5 million b/d rather than climbing to 13.5 million as currently forecast.
Should US shale oil production peak in the next two years, and as seems likely, Venezuela’s oil output fall by some 500,000 b/d, the global oil market would undergo a sea change. Oil could move strongly higher—to $80, perhaps even to $100 again—which could lead to a fall in economic growth, perhaps precipitously.
World oil prices have been held in check by ever-growing US shale oil production. When this comes to an end, there is little to replace it as a way to keep increasing the world’s oil supply. Investment in development dropped rapidly a few years ago and has yet to increase to the level that can supply world demand that has been growing at 1.5 million b/d. Some are looking to the major oil companies to take over the majority of production in the Permian Basin from small drillers and to keep production growing. Although these companies have a lot of spare cash from conventional operations, they have to prove they can be any more profitable than their smaller rivals.
Discussions of just when world oil production will peak have been dormant since the development of shale oil production ten years ago. Now, these discussions have begun again with some observers, outside of the industry and the mainstream financial press, talking about the peak being very close.
We seem to be entering a time of much disagreement about the immediate future of the oil industry with some seeing lower production and higher prices just ahead, and others plenty of oil and moderate prices for many years to come.
The OPEC Production Cut: Saudi Arabia’s Energy Minister al-Falih said OPEC will continue producing less crude oil than it could until at least June. A decision in April, when OPEC+ meets again, would be too early to end the cuts. “We will see where the market is by June and adjust appropriately.” The Saudis believe demand for crude will remain healthy this year, driven mainly by the US and China. Rising demand from China, which the Saudis expect will reach 11 million b/d this year will require more Saudi crude. The Kingdom announced last month it was planning to increase its oil exports to China this year to 1.5 million b/d from 1 million.
US Shale Oil Production: There was much optimism at the CERA WEEK conference in Houston for ever-increasing production from the Permian Basin. Other US shale oil basins do not seem to offer much in the way of growth prospects. The IEA seems even more optimistic than the CERA conference speakers when it said last week that the US would drive global oil supply growth over the next five years by adding another 4 million b/d to its output. The agency says that US oil production, including natural gas liquids and other hydrocarbons, will climb to 19.6 million b/d by 2024 from 15.5 million last year. Moreover, the US is expected to double its gross crude oil exports to 4.2 million b/d by 2024, while total exports of oil and refined products should reach 9 million b/d.
Chevron and Exxon are emerging as top players in the Basin, while European companies BP and Shell are growing their operations there. These firms have size, economic diversity and the finances to theoretically produce oil and gas with fewer emissions and at a lower cost. Chevron and Exxon made a stir at the CERA conference when they said they each plan to produce almost 1 million barrels of oil equivalent a day from the Permian within five years — roughly triple their current output. Chevron holds more than 2 million net acres in the basin and watched as smaller companies eventually found success with horizontal drilling techniques and hydraulic fracturing. Now, Chevron is using its size and technology to rapidly ramp up production, employing a factory-model in which many wells are drilled, fracked and completed in a standardized, repeatable way. The IEA said that the involvement of major producers in shale oil production would stabilize the markets as they are better able to keep on drilling no matter what the price.
Exxon plans to reduce the cost of extracting oil in the Permian to about $15 a barrel, a level that is only seen in the giant oil fields of the Middle East. The scale of Exxon’s drilling in the Permian means that it can spread its costs over such a big operation that the basin will become competitive with almost anywhere in the world. This is indeed a bold claim, and even if true, Exxon still has the problem of finding places to drill with a diminishing number of sweet spots and coping with depletion which grows larger every day.
Shell has a more modest involvement in the Permian, but still is looking to grow there. As a European firm, with more domestic pressure over emissions and climate change than US firms, it has begun to link its carbon emission targets to its executive compensation. On Tuesday, Gretchen Watkins, president of Shell’s US subsidiary, called on the White House to tighten the rules on methane leaks from oil and gas production rather than roll them back as proposed.
2. The Middle East & North Africa
Iran: According to OPEC, Tehran’s oil production has been holding steady at around 2.75 million b/d after dropping by about 1 million b/d in the six months after the US sanctions started last year. Washington believes that Iran has lost $10 billion in revenue since US sanctions began in November and that about 1.5 million b/d of Iranian crude has been removed from global markets.
Brian Hook, the State Department’s special representative on Iran, said at the CERAWeek energy conference that due to a global oil surplus – in part due to record US production – the US is accelerating its plan of bringing Iranian crude exports to zero. Washington wants to cut Iran’s crude exports by about 20 percent to below 1 million b/d from May by requiring importing countries to reduce purchases to avoid US sanctions.
However, Hook also said that the current waivers, which allow Iran’s eight biggest customers to purchase only a limited amount of oil from Iran, could be extended if the sanctions on Venezuela and its numerous other problems significantly impact global oil supply and prices. This is the first indication that Washington is becoming worried about rising oil prices and may be willing to back off pressure on Iran for a while.
Tehran is searching for second-hand oil tankers to replace its aging fleet and keep crude exports flowing as US sanctions start to take effect. Talks with South Korea for up to 10 new supertankers have stalled, and Panama has removed at least 21 Iranian tankers from its registry, forcing Tehran to step up the search for more tankers.
Potential sellers of vessels are warier under the new round of sanctions after a Greek network that helped Iran buy tankers under previous restrictions was blacklisted. Western insurers are steering clear of Iranian vessels, and Iran’s attempts to export crude to the US-approved buyers is further complicated by having to put its tankers under its own flag, rather than a third country such as Panama.
Iraq: Baghdad’s oil production continues to creep higher despite its adherence to the OPEC+ production cut. The federal government has roughly doubled the amount of its monthly transfer to the Kurdistan Regional Government — a sign of a deepening relationship of interdependence between Baghdad and Erbil. The 2019 budget law calls on the KRG to contribute 250,000 barrels per day of its independently managed oil production to the federal government’s exports – and if it fails to do so, there could be financial penalties.
Iraq and China are set to conclude a bilateral agreement that would give Iraqi investors access to roughly $10 billion worth of financing. The deal is likely to accelerate the pace and widen the breadth of China’s involvement in the Iraqi economy, including the energy sector, and provide the money needed for reconstruction and infrastructure projects that cannot be funded by the Iraqi budget alone.
Saudi Arabia: The Saudi kingdom plans to cut its crude oil exports in April to below 7 million b/d while keeping its output “well below” 10 million, as the kingdom seeks to shrink the supply glut and support oil prices. Aramco’s oil allocations for April are 635,000 b/d below its customers’ requests for oil. The planned cut in Saudi exports, when combined with a similar amount of lost Venezuelan exports, is likely to have a severe impact on oil prices this spring.
Saudi oil minister al-Falih said last week that China and the US would lead healthy global demand for oil this year but that it would be too early to change OPEC+ output policy at the group’s next meeting in April. He said total global oil demand is set to grow by around 1.5 million b/d.
Saudi Aramco’s board met last week to approve a $10 billion bond issue that would help finance the acquisition of a 70 percent stake in Saudi petrochemicals maker SABIC. The company’s representatives are expected to meet fixed-income investors in a bond “roadshow” in April.
Libya: The Sharara oil field in Libya will recover its output to 300,000 b/d within two weeks. The country’s largest field has been plagued by outages, the latest of which lasted almost three months. The field was shut down in December when clashes between militant groups forced the National Oil Corporation to declare a force majeure after locals occupied Sharara with demands for better economic conditions and power supply security. The uprising lasted until early February, when the Libyan National Army, a group affiliated with the eastern Libyan government, took control of Sharara.
3. China
Growth in China’s industrial output fell to a 17-year low in the first two months of the year, pointing to further weakness in the economy. Pressured by weak demand at home and abroad, industrial output rose 5.3 percent in January-February, less than expected and the slowest pace since early 2002. Growth had been expected to drop to 5.5 percent from December’s 5.7 percent.
China combines January and February activity data in an attempt to smooth distortions created by the long Lunar New Year holidays early each year, but some analysts say a clearer picture of the economy’s health may not emerge until first-quarter data is released in April.
US tariffs are likely partially responsible for weak factory output. Trade data released last week showed Chinese exports declining by the most in three years. “Due to the trade friction, a lot of factories rushed to handle imports and exports before the lunar new year. Now they’re mostly in an observation mode as they wait to see if the tariffs will be lifted.” President Trump warned Beijing on Wednesday that he would not sign off on a trade deal that didn’t meet US demands, in a sharp departure from his recent optimism.
Amid signals that the US and China have made some progress in trade negotiations in recent weeks, China has tentatively resumed buying US commodities – something it had stopped doing during the peak of the trade dispute in the summer and fall of 2018. China is now once again importing US crude oil and soybeans, but the Chinese response to US LNG offers is still weak.
China’s refinery crude throughput rose 6.1 percent year on year to a record high of 12.73 million b/d over January and February, according to preliminary data. The year-on-year growth over the past two months was lower than the increase of 7.3 percent seen for the same period in 2018.
Asia is drowning in Chinese fuels, and things are about to get worse over the next three years as new refining capacity begins operating. There are several factors at play here, including the rise of the teapots, slowing economic growth, and perhaps a “less-than-accurate” forecast of future fuel demand trends in China. The teapots—China’s independent, private refiners—are the primary driver of the glut that is choking off Asian refiners’ margins and pressuring prices.
China expanded its coal-to-gas and projects to 35 cities in 2018 from 12 cities the previous year, Environment Minister Li Ganjie, said last week as Beijing stepped up its fight against smog. China’s winter heating program used to burn an estimated 400 million tons of coal a year and switching it to cleaner types of fuel is a primary part of the country’s war on pollution, now in its sixth year. The program to convert households to low-emission heating ran into difficulties last winter amid widespread natural gas shortages, but 4.8 million households still managed to make the switch from coal to natural gas and electricity last year.
4. Russia
At an energy ministry meeting earlier this month, Russia’s oil majors confirmed that they would be sticking to the production cuts that Russia had pledged in the OPEC+ deal. The firms have not discussed production plans for the second half of the year and have decided that they would do so after April.
Moscow has identified opportunities when it comes to the changing climate and the gradually decreasing icecap of the Arctic region. Moscow’s Arctic Strategy is intended to provide an edge for the Eurasian country in the areas of energy and defense while at the same time promoting the Northern Sea Route as an alternative shipping route. Russia has vast oil and gas reserves in the Arctic. In terms of technically recoverable energy, the region contains as much as 90 billion barrels of oil and 47 trillion cubic meters of natural gas of which the Russian zone has the largest share, 48 billion barrels of oil and 43 trillion cubic meters of gas respectively.
Public support for the Kremlin and President Putin has slumped in recent months. The government’s popularity had spiked after Russia annexed the Ukrainian territory of Crimea in 2014, catapulting Putin’s approval rating to near 80 percent, where it remained for nearly five years. Over the past six months, Putin’s rating has crashed. True, the most recent poll by an independent Russian polling organization suggests that 64 percent of Russians continue to approve of Putin’s work as president. That is the lowest number since 2013 when Putin returned to the presidency amid anti-regime protests.
The German-Russian Nord-Stream 2 pipeline project had been a bone of contention between Berlin and Washington, which fears it will make Europe’s largest economy excessively reliant on Russian energy. However, work continues on the gas link under the Baltic Sea financed by several Western firms and Gazprom, the Russian state-controlled energy company. The dispute is coming to a head. The Trump administration contends the pipeline would prop up Moscow, still under Western sanctions for its 2014 Ukraine invasion. Berlin says the pipeline would improve the continent’s energy security. Gazprom already operates gas links to Europe that traverse Ukraine.
Washington is preparing to enact sanctions against the pipeline. A U.S. security official who briefed Mr. Trump on the issue said the president saw Nord Stream 2 as incompatible with the military shield America maintains over Europe. “Sanctions against the pipeline would mean a confrontation not just with Germany, but with Europe,” said a German official familiar with the project. “We will do anything it takes to complete this pipeline.”
The group building the Nord Stream 2 pipeline to import Russian gas into Germany is exploring plans to hive off its last 50km into a separate company, a move that would undermine EU plans to regulate the entire $9.5bn project. Under the proposal, a new company would own and manage the small part of the undersea pipeline within German territorial waters. While this section would be subject to EU rules, the rest of Nord Stream 2 – nearly 1,200km through the Baltic Sea – would remain outside the bloc’s jurisdiction.
5. Nigeria
Normal crude oil export operations were restored on the 150,000 b/d Nembe Creek Trunk Line following the plugging of a leak which resulted in the shutdown of the facility on February 28. A spokesperson for the operator of the 97-kilometer crude oil pipeline said the facility “is up and running”. The restoration of normal operations has allayed fears of a significant disruption of oil exports on the pipeline, which brings crude oil to the Bonny Oil Export Terminal.
The Nigerian government does not allow oil companies operating in the country to announce that a terrorist attack on an oil facility has caused any damage. The only clue that an attack has closed a pipeline is when a company declares force majeure on oil exports. During the recent Presidential election, militant groups threatened to resume attacks on the oil infrastructure if President Buhari was reelected. So far there is no evidence that the militants have resumed attacks that were able to shut down several hundred thousand b/d of Nigerian oil production.
6. Venezuela
At week’s end, electric power seems to have been restored to much of the country although there are scattered outages and two of the three “upgraders” that prepare heavy oil for movement are still out of service. For most of last week, little oil moved anywhere in the country, and it is unknown how long it will take to resurrect the 1 million b/d that the country was producing before the lights went out.
Analysis of satellite imagery shows a brush fire burning below the high-tension lines that move power from the Guri dam to the cities. Experts are saying that the lack of funds to clear brush from beneath the power lines was the likely cause of the nation-wide disaster. Power surges during the event damaged or destroyed an unknown amount of power-switching equipment. The whole national grid is in deplorable condition so that more power outages are likely. Before the blackout, Venezuela’s oil production was falling at the rate of 50,000 b/d each month so that even if the oil industry receives the electric power it needs to operate, it is likely to shrink due to numerous other problems.
In its Oil Market Report for March, the International Energy Agency warned that as Venezuela’s oil industry was so severely disrupted by the crisis that the loss of production could present a challenge to the global oil market. However, the IEA noted that Venezuela’s current level of production is about the size of the output cuts agreed by OPEC+ and that OPEC is now sitting on top of 2.8 million b/d of spare production capacity which could replace Venezuela’s production in the event of a complete collapse.
Even though the main oil export terminal resumed operations on Friday, Venezuela’s political/economic crisis continues with the US planning still more sanctions as it withdraws its remaining diplomats from the country. There is little food left in the country and gangs of armed government supporters on motorcycles rule the streets.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
The international rig count, outside of North America, was 1,027 last month, according to GE’s Baker Hughes. That’s up 48 year-over-year. (Baker Hughes site)
The global refining industry faces a wave of new capacity additions to 2024 that would greatly exceed demand growth for refined products, and this may result in refinery closures to rebalance the market, the International Energy Agency (IEA) said in its Oil 2019 annual report. (3/12)
Survey = industry wanting: The oil and gas sector is facing a stiff competition in attracting young talent in science, technology, engineering, and mathematics (STEM) because Millennials and Generation Zs are most interested in jobs in an industry associated with new technologies, according to the “Workforce of the Future” survey commissioned by the Abu Dhabi National Oil Company. (2/15)
If the UK were to roll out fracking at its shale gas reserves, it could nearly eliminate its net gas imports by the early 2030s, industry group United Kingdom Onshore Oil and Gas (UKOOG) said in a report on Monday. The group has revised up its estimates for potential shale gas production, after the recent flow test data from UK company Cuadrilla which resumed fracking in England last year for the first time in seven years. (3/12)
In Norway, the $1 trillion sovereign wealth fund of Norway may sell off all of its shares in oil producers. The move is a shot across the bow for the oil industry. A $1 trillion fund, built on oil itself, now sees the future of oil as too risky. Norway’s sovereign wealth fund is not getting out of the oil business entirely. The government has only recommended exiting oil and gas exploration and production companies (i.e., upstream producers). The reason why the fund wants to pursue divestment is that it views the long-term oil market as volatile, unpredictable, and at this point, vulnerable to permanently low prices. (3/11)
In Israel, Exxon Mobil Corp is considering exploring for oil and gas in Israel, which would make Exxon the first oil major to operate in the country still technically at war with Gulf Arab states. A number of large gas discoveries offshore Israel and in nearby eastern Mediterranean waters in the last decade have made Israel a potentially lucrative prospect for big energy firms. (3/14)
Pakistan is eager to open up its gas deposits to foreign energy companies in a bid to boost domestic production amid soaring demand, two government officials told media this week. The country has trillions of cubic feet in natural gas reserves, and although some of these have been exploited, the last decade has seen an outflow of foreign energy investors because of Islamist violence. Is the worst over? (3/14)
In Kenya, the scandal of siphoned fuel at Kenya Pipeline Company deepened on Wednesday after it emerged that 51 million liters of jet fuel, worth Sh5 billion, has gone missing from the stocks — triggering an unprecedented crisis at Moi and Jomo Kenyatta International Airport. (3/16)
Offshore Angola, Italy’s oil and gas major Eni said on Wednesday that it had made a major oil discovery in deep-water–a find that could help the African OPEC producer reverse the recent decline in oil production. The data acquired from the well indicates a production capacity of more than 20,000 bpd. (3/14)
Colombia’s government on Monday said it signed two exploration and production contracts with Shell in offshore areas of the Caribbean Sea that will require the company to make initial investments of $100 million. (3/12)
In Panama, the Panama Canal Authority’s new maximum draft restriction of 45 feet, or 13.72 meters, could impede the transit of Aframaxes and Long Range 2 tankers through the Neopanamax Locks, as a fully laden Aframax or LR2 has a draft of 14.9 meters. (3/14)
In northern Alberta, Exxon Mobil Corp. is delaying a C$2.6 billion ($1.9 billion) oil-sands project by at least a year as the nation’s energy industry grapples with a shortage of pipeline space and government-mandated production cuts. Exxon’s Canadian subsidiary, Imperial Oil Ltd., had originally planned to bring the 75,000-barrel-a-day Aspen project online in 2022, but is now slowing the pace of development. (3/16)
Canadian oil sands producer MEG Energy Corp. is reconsidering oil sands expansions as new export pipelines are delayed and the provincial government limits production. MEG had planned to ramp up output at an expansion of its Christina Lake oil sands project in the second half of the year. Now, the “probability of that going ahead this year has decreased.” (3/14)
The US oil rig count declined by one to hit 833, while the gas-rig count was unchanged at 189, according to GE’s Baker Hughes. The combined total of 1,026 is still up 36 from the 990 that were drilling last year at this time. However, after hitting a peak of 1,083 total rigs in late December, the active rig count is now down by 57, or just over 5%. (3/16)
Oil exports: Occidental Petroleum Corp has emerged as one of the biggest exporters of U.S. shale oil, rivaling large trading firms and oil majors, in a market now worth more than $150 million every day. It is showing no signs of slowing down, with plans to double crude exports to 600,000 barrels per day in 2020. (3/11)
In Alaska, less than two weeks after Gov. Michael Dunleavy cast doubt over the $43 billion Alaska LNG project, two oil majors have resuscitated hope that the massive capex project could go forward after all. The Alaska Gasline Development Corp. (AGDC) said on late Friday that it had signed a collaboration agreement with oil majors BP and ExxonMobil to look for ways to help advance the state-owned company’s proposed project. (3/13)
Alaska’s US Senator Lisa Murkowski, a Republican, said it is unclear if there is commercial interest in drilling in US Arctic waters, but said regulators should keep the option open for producers. (3/12)
Offshore dustup coming? The Trump administration is likely to open up portions of the Atlantic to oil and gas drilling despite opposition from East Coast states, a U.S. Interior Department official suggested in remarks at a recent energy industry conference. The comments come as the administration of President Donald Trump prepares to release a new five-year drilling plan proposal for federal waters that could vastly expand available acreage, part of its broader agenda to maximize U.S. oil, gas and coal production. (3/16)
EV commitment: The Volkswagen Group is now planning to launch almost 70 new electric models in the next ten years instead of the 50 previously planned. As a result, the projected number of vehicles to be built on the Group’s electric platforms in the next decade will increase from 15 million to 22 million. Further, Volkswagen has signed off a comprehensive decarbonization program aimed at achieving a fully CO 2 -neutral balance in all areas from fleet to production to administration by 2050. (3/13)
Easing fossil fuel dependency: Communities that have depended economically on coal are facing impacts now that communities that similarly rely on oil and gas will face in the future. Such communities, along with county and state governments, should consider partnerships with producers to help retrain employees and others who want to stay, speakers said during a March 14 discussion at Resources for the Future about public policy reactions to oil-producing regions’ economic volatility. (3/16)
Coal slide: The US is estimated to produce 694.9 million st of coal in 2019, the US Energy Information Administration said Tuesday, cutting its estimate from a month ago by 3.8%. The 2019 production would be 7.8% lower than the 753.7 million st produced in 2018. (3/13)
A “tsunami” of battery storage is set to sweep across the US in the coming years, a developer said Thursday during CERAWeek in Houston. As costs come down and the market discovers an enthusiasm for storage, the capacity factor will jump because storage can offer the ability to make better use of energy sources. (2/14)
CERAWeek carbon conundrum: Some of the world’s top oil executives plan a call to action at a premier industry conference this week, arguing that companies need to actively address climate change and technology concerns that are scaring investors away. Rising climate activism, new technology and investor unrest have chastened and divided the global energy industry, a development set to define the CERAWeek by IHS conference, an annual gathering here that is usually dominated by a full-throated defense of fossil fuels. (3/12)
Oil + gas to persist: Despite increasing renewable energy in recent years and an ongoing push to reduce greenhouse gas emissions, oil and natural gas are likely to remain a major part of the world’s energy mix for the next at least 15 years, John Hess, the long-time CEO of large oil company Hess Corp. said Monday. (3/12)
Carbon pressure: The oil industry is starting to feel the pressure of climate change. Oil executives, by and large, have not been swayed to change their business practices despite years of warnings about the climate crisis. However, they are beginning to listen to shareholders who are demanding change, while also seeing policy risks looming just over the horizon. There is palpable anxiety about the future. (3/14)
Talk w/ Green Dealers: The oil industry should engage with proponents of the “Green New Deal,” a Democratic initiative seeking to radically reduce U.S. dependence on fossil fuels, BP Chief Executive Officer Bob Dudley said on Tuesday. Dudley urged peers to engage with young people or lose the trust of society. (3/13)
Norway’s state-led energy company Equinor sees the need for significant cooperation from the oil and gas industry to fight climate change, and lead the transition away from fossil fuels, the company’s CEO Eldar Saetre said Monday. (3/12)
France’s climate push: A draft energy and climate law due to be presented to French cabinet ministers on Monday has been postponed so that it can be reworked with more ambitious environmental goals, President Emmanuel Macron’s office said on Sunday. The proposals had been criticized by climate change campaigners and a high-level state-backed economic affairs committee for being too vague on some targets. (3/11)
Shell’s carbon plan: Royal Dutch Shell has set its first-ever short-term goals to cut the carbon footprint of its operations and product sales as the oil and gas industry is under intense investor and shareholder pressure to address climate change. In its annual report published on Thursday, Shell said that in early 2019, it had decided to set a “Net Carbon Footprint target” for 2021 to lower its carbon footprint by 2-3 percent compared to the 2016 Net Carbon Footprint. (3/16)
Shell = electricity? Royal Dutch Shell, one of the world’s biggest oil and gas groups, is aiming to become the largest electricity company by the 2030s, as it prepares for a fundamental shift in global energy supplies towards lower-carbon sources. Maarten Wetselaar, Shell’s director of gas and new energies, told the Financial Times that the group could develop a power business, including supplying customers, trading and providing equipment, that was the same size as its oil or gas operations. (3/13)
Peak Oil Review: 11 March 2019
By Tom Whipple, originally published by Peak-Oil.org
https://www.resilience.org/stories/2019-03-11/peak-oil-review-11-march-2019/
GRAPHIC OF THE WEEK
Quote of the Week
“All the climate arguments are real, urgent and important.” Spencer Dale, group chief economist at supermajor BP, told the Washington Post.
1. Oil and the Global Economy
The struggle between declining economic growth and falling oil supplies continued to affect oil prices last week. The failure of a significant portion of Venezuela’s electricity grid has already been a significant blow to the country’s roughly 1 million b/d of oil production, and the situation seems likely to get worse. However, part of this decline could be offset by the return to production of Libya’s 300,000 b/d Sharara oilfield after being offline for three months.
There was mixed economic news last week. The US jobs report does not bode well for the future, and China’s exports were some 20 percent lower last month than in 2018. This news was offset by talk of a settlement to the US-China trade dispute later this month. These factors balanced each other off resulting in London futures falling about 1 percent to $65.74 and New York futures climbing by a similar amount to close the week at $56.07.
The major domestic news for the week was the announcement by Chevron that it plans to increase its production from the Permian Basin by 900,000 b/d in the next five years and a similar statement by Exxon that it will expand its Permian output by 1 million b/d. These announcements came in response to a Wall Street Journal story that US shale oil production is starting to falter due to wells being drilled too close together.
For the next few weeks, the course of the Venezuelan power outage and the US-China trade talks could impact oil supplies and prices. Should Venezuela’s multiple problems lead to the loss of a major part of the country’s exports, then oil prices will likely move higher. Coupled with the OPEC+ production cuts, signs that the rapid growth of US shale oil production may be about to slow, and even the furor over Brexit, we may be on the verge of geopolitical changes that will affect the oil markets before the year is out.
The OPEC Production Cut: Russia plans to speed up oil output cuts this month, and by the end of the month it will bring its oil production cut to 228,000 b/d from the October level. Energy Minister Novak told reporters on Monday “We have an understanding that in March there will be higher compliance rate than in previous months.” Moscow maintains that the extreme cold in which most of its oil is produced prevents it from cutting production in the winter without damaging its equipment and oil fields.
US Shale Oil Production: Last week began with a report in the Wall Street Journal that the “shale companies’ strategy to increase oil and gas production by drilling thousands of new wells more closely together is turning out to be a bust.” Not only is less oil than expected coming from wells being drilled too close to an older well, but the production from older wells in the vicinity of the new ones is “threatening the US oil boom and forcing the maturing industry to rethink its future.” The practice of bunching wells in close proximity to other wells has been going on for some time, but now we have the prestigious Wall Street Journal, which is read carefully by lenders to shale drillers, alleging that the practice has become so widespread that it threatens the industry.
The Journal, which has verified the problem by examining production reports for thousands of recently drilled wells, says that engineers are warning that the new “child” wells could produce as much as 50 percent less oil than more widely spaced wells. These “child” wells, however, cost the same to drill and frack as more isolated wells, raising the issue of whether the capital cost of “child” wells will turn out to be more than the value of the oil that they will ever produce. Most of the wells planned for the next decade will be “child” wells.
One driller who was planning to drill 32 wells in each drilling block of roughly two square miles is now planning to drill 16 to 24. A recent study by the Society of Petroleum Engineers found child wells could produce between 15 and 50 percent less oil, depending on how close the wells are packed. Another study by Rystad Energy found that the first “parent” wells will produce 10 to 12 percent less oil and gas on average when a “child” well is drilled nearby. Much lower production from “child” wells becomes important as over 50 percent of the wells in the Permian Basin are now “child” wells.
Drillers have finite acreage from which to produce oil, so it’s not always possible to stretch out the same number of planned wells over a larger area. Companies will have to drill fewer wells than they had anticipated, which means that we are likely facing “an industry-wide write-down” if drillers are forced to downsize the estimates of wells they can drill and soon will have trouble coming up with enough new production to offset the notoriously rapid depletion of shale oil wells.
The story brought an immediate reaction from Chevron and Exxon who are heavily invested in the Permian and are counting on production from the basin for much of their profitability in the coming decade. These companies have deep pockets, so they are not dependent on a constant infusion of new capital and bring with them more technical expertise than the smaller drillers. Both companies are expecting a Permian basin oil boom in the next five years.
Chevron says it expects to double its production to 900,000 b/d in the Permian and Exxon expects to be producing 1 million b/d by 2024. Chevron says it does not have the problem of lower production from child wells that is plaguing the smaller drillers as it is using “sophisticated machine learning technology” to plan where and how to drill and frack its wells. Chevron is becoming increasingly dependent on shale oil production and says its Permian resources of 16.2 billion barrels are about a quarter of its total reserves.
Exxon says its Permian reserves are now about 10 billion barrels out of global reserves of 100 billion. The company claims it is so good at producing shale oil from the Permian that it can be profitable even if prices fall to $35 a barrel. However, last year the Australian mining giant BHP pulled out of the US shale oil business after writing off roughly $20 billion saying they had better opportunities for making money than producing shale oil. Perhaps Chevron and Exxon will be better managers of shale oil properties and will be able to extract oil at a profit where others have failed. It will be an interesting decade ahead.
Last week US oil drillers cut the number of operating oil rigs for a third week in a row to the lowest level in 10 months as the smaller producers cut spending even though oil majors plan to spend more. Drillers cut nine oil rigs in the week to March 8, bringing the total rig count down to 834, the lowest since May.
2. The Middle East & North Africa
Iraq: Iraq maintained near-record levels of oil exports in February, with overall sales averaging 3.996 million b/d. The export total includes 3.621 million b/d by the federal government and 375,000 b/d by the autonomous Kurdistan Regional Government.
At least six paramilitary fighters died in an insurgent ambush on in Iraq’s disputed northern territories, which remain fertile ground for Islamic State militants to continue the insurgency. This is the region which had been controlled by the Kurds until they were forced out by government troops last year.
Saudi Arabia: The kingdom produced 10.1 million b/d of crude in February, well below its quota under the OPEC+ supply quota 10.31 million b/d. A government official told S&P Global Platts that “March will be lower.” Saudi Energy Minister al-Falih said last month that March production would fall to 9.8 million b/d, with exports at 6.9 million b/d.
Large volumes of natural gas have been found in the Red Sea, according to the Energy Minister al-Falih. Aramco also is considering opportunities for acquisitions of liquefied natural gas projects in the United States. Earlier this year, Aramco’s chief executive Amin Nasser told Reuters that the company was looking to spend billions of dollars on natural gas acquisitions in the US as part of a strategy to bolster its gas business.
The listing of Saudi Arabia’s Aramco is on track to take place in 2021 according to Energy Minister al-Falih. In January, Al-Falih said the company would issue an international bond in the second quarter of this year, mostly to fund the acquisition of a majority stake in petrochemicals major Sabic, valued at $70 billion, but also to tap “multiple sources of capital.” Given Aramco’s reluctance to make its accounts public, as befits a company preparing for a listing, many are skeptical that the bond issue will ever take place since international bond investors are just as interested in a company’s financial health as stock investors.
Libya: The country’s biggest oil field resumed production last week, adding another complication to OPEC’s effort to trim a global supply glut. Sharara is expected to produce 80,000 b/d immediately, and the regular output of 300,000 b/d will be restored now that the site has been secured. The first export cargos of Sharara crude since the lifting of force majeure will be loaded this weekend, according to trading sources and shipping reports.
The field, which was shut down in December after guards seized it while demanding more money, was taken over last month by forces loyal to eastern militia leader Khalifa Haftar. The National Oil Company “has received assurances that site security has been restored, verified by our inspection team, enabling staff to return to work,” Chairman Mustafa Sanalla said in the statement. The shutdown led to $1.8 billion in lost production.
In a new development, forces from eastern Libya loyal to Haftar have now reinforced a base in the center of the country and signaled to Tripoli that they might move to take over the capital. The UN is attempting to mediate between Haftar and Tripoli’s internationally-recognized government led by Prime Minister al-Serraj, Western diplomats say. They fear it may be the last UN attempt to unify the rival administrations and end the chaos that followed the overthrow of Muammar Gaddafi in 2011.
Haftar, a 75-year-old former general, is increasingly taking the situation into his own hands, backed by the United Arab Emirates and Egypt who see him as the man to restore order to Libya. For many, especially in the east, the general is the only one who can end fighting by numerous small militia groups with ever-changing names. His enemies in western cities see him as the new Gaddafi.
3. China
China lowered its economic growth target this year to between 6 and 6.5 percent, acknowledging a deepening slowdown. A paper published last Thursday by the Brookings Institution reinforced longstanding skepticism about the government’s statistics. According to the paper, China’s economy is about 12 percent smaller than official figures indicate, and its real growth has been overstated by about 2 percent annually in recent years suggesting that Beijing’s economy currently is growing at around 4 percent.
Beijing reported its steepest year-on-year decline in exports in three years on Friday, the latest sign that a global slowdown and the trade dispute with the US are hurting its economy. Exports sank 20.7 percent last month compared with February 2018, the biggest monthly fall since February and four times steeper than the 4.8 percent decline forecast in a Reuters poll of economists. Imports fell 5.2 percent, compared with a forecast drop of 1.4 percent, leaving China with the smallest trade surplus in 11 months.
China’s CNPC plans to increase its oil and gas exploration budget five-fold over last year as the country’s dependence on foreign-sourced energy commodities deepens to nearly 70 percent for oil and over 45 percent for natural gas. CNPC will spend $740 million (5 billion yuan) on exploration to pursue the goal of reducing import dependence.
US-based LNG exporter Cheniere Energy is in talks with China’s state-run Sinopec about a long-term LNG supply agreement, with the parties awaiting further instructions from government authorities. The Wall Street Journal reported that Cheniere is expected to sign an $18 billion supply agreement with Sinopec that might be announced as part of a broader US-China trade deal at a summit between President Trump and Chinese President Xi Jinping at the end of March.
The supply of domestic coal is expected to tighten further as authorities in China’s northwestern province had ordered open-pit mines to shut down. According to a document released by local authorities in Shenmu and Fugu, counties in Shaanxi’s Yulin city, all open-pit coal mines will have to be shut by the end of this year.
China’s coal imports in February fell sharply from January due to uncertainty over Beijing’s policies, while the week-long lunar new year holiday also cut into business. Coal arrivals were nearly halved in February to only 17.6 million tons, down from 33.50 million tons in January.
4. Russia
Russian exports of oil and oil products to the United States surged in the last week of February to their highest level since 2011, with Russia taking advantage of the Venezuelan collapse. At least nine tankers delivered 3.19 million barrels of oil and oil products of Russian origin to US ports in the week February 23 to March 1.
5. Venezuela
On Thursday evening the San Geronimo B substation in the center of the country, which supplies electricity to four out of five Venezuelans from the massive Guri hydropower plant, went down. The San Geronimo B substation connects eight out of ten Venezuela’s largest cities to the Guri hydropower plant via one of the longest high-voltage lines in the world.
So far, the government has said nothing about the cause of the blackout, except to blame it on Washington and the opposition. Venezuela gets about two-thirds of its power from four hydro dams along the Caroni river including the Guri dam which is one of the largest in the world. The nearby San Geronimo A backup substation, which transmits current from the smaller Matagua hydropower plant, operated intermittently on Sunday. Supplies from Matagua and few unreliable thermoelectric plants allowed the government to send sporadic power to parts of Caracas throughout the weekend.
Unless repairs to the to the substation can be made quickly, which seems increasingly unlikely, due to the lack of spare parts, the country is facing a humanitarian crisis on a scale not seen since World War II. Food is spoiling due to the lack of refrigeration and there no way to pump or transport fuel so that food supplies can be maintained. Much of the oil industry has come to a halt due to the lack of power for pumps.
In other news, opposition leader Juan Guaido had returned to the country despite threats to arrest him. The US is considering imposing more sanctions and is discussing emergency economic aid. The World Bank says that Venezuela must pay ConocoPhillips more than $8 billion to compensate Conoco for assists expropriated by Hugo Chavez back in 2007.
In recent years, PDVSA’s fleet of 15 oil tankers has been operated by a German ship-management company that supplied the crews and operated the ships. This worked well until Caracas stopped paying the German firm and the various port charges that tankers accrue during normal operations. The German firm has already abandoned several oil tankers that have been detained in foreign ports for non-payment of local bills. The Germans say they will return ten tankers to Venezuela and remove their crews, but there are no crews in Venezuela immediately available to operate the giant ships. Unless a solution is found, Venezuela will soon be out of the tanker business.
As the political and economic situation deteriorates to unimaginable levels, Moscow has reaffirmed its support of the Maduro government. This support includes threatening the US against military intervention and facilitating payments for Venezuelan oil that skirt the US sanctions. In recent years, Russia has invested billions of dollars in supporting the Maduro regime and fears it will lose its money and its influence in the country should the government fall. Over the weekend, however, there were signs that Moscow is backing off on its support for the Maduro government as the power shortage makes its situation ever more hopeless.
6. Mexico
Standard & Poor’s cut the credit rating for Mexico’s national oil company, Pemex, last week. The move reflects concerns that the government’s plan to clean up Pemex’s finances is insufficient, and that the company will continue to be subjected to political decisions that conflict with its financial objectives. Newly elected Mexican President Obrador has said he will inject $3.9 billion into the company which is currently $106 billion in debt. S&P says this is not enough and that it will take at least $20 billion in government aid to revive Pemex.
Despite the efforts of the new Mexican government to reduce the country’s dependence on US natural gas, a new report says this will be impossible in the foreseeable future. Mexico now imports over 50 percent of its natural gas requirement from the US, and this seems likely to increase. Mexico does not have the capital to develop sufficient gas production to reduce that being piped in from the US.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
BP on oil’s future: Despite the forecast that peak oil demand could come in the 2030s, BP noted that under all scenarios oil will continue to play a significant role in the global energy system by 2040. Moreover, BP wrote that significant levels of investment are required for there to be sufficient supplies of oil to meet demand in 2040, adding that in all scenarios, trillions of dollars of investment in oil is needed. (3/6)
Norway’s $1 trillion sovereign-wealth fund took a major step toward selling off some of its substantial holdings in oil-and-gas companies, a move to shield the oil-rich nation from the risk of permanently lower crude prices. The Norwegian finance ministry proposed that the fund remove energy-exploration and -production companies from its portfolio, following a 2017 recommendation made by the central bank, which uses the fund to invest the proceeds of the country’s oil industry. (3/9)
Russia’s Gazprom Export said Thursday it had made its first ever sale of gas to a western European company priced in rubles, as the company continues to use its Electronic Sales Platform as a tool for diversifying its European gas sales. (3/8)
The US oil rig count decreased by nine to 834, the lowest since last May and the third straight weekly decline, according to GE’s Baker Hughes. Gas rigs declined by two to 193. (3/9)
Exports growing: The US is poised to export more oil and liquids than Saudi Arabia by year-end, according to Rystad Energy. The shift, Rystad explains, comes from continued rising production from US shale plays and increased oil export capacity from the US Gulf Coast. (3/8)
Offshore brouhaha? The Trump administration is set to unleash its offshore, five-year oil drilling plan within weeks, making it perfectly clear that it would like to open more acreage to drillers along the coast of the country. That has drawn opposition from both Democratic and Republican leaders in the coastal states. (3/8)
South Dakota’s governor, Kristi Noem, has proposed legislation seeking to uncover where out-of-state funds for pipeline protests come from and “cut them off at the source;” Republican Noem also said she would set up a fund for extraordinary costs for law enforcement that usually accompany pipeline protests. (3/6)
Colorado is overhauling the laws governing how the oil and gas industry operates in the state. The legislation seeks to put more protections on public health, safety and the environment as it relates to oil and gas development. (3/7)
Oil busting: The Colorado State Senate Transportation & Energy Committee has passed a bill which the American Petroleum Institute (API) says “threatens hundreds of thousands of jobs.” In an organization statement posted on its website, the API said bill SB19-181 would “at the very least hinder, if not prohibit” energy development in Colorado. (3/8)
Sage grouse habitat issue: The US government received bids for about 70 percent of the land it offered at a large oil and gas lease sale in Wyoming last week, held over the protests of conservationists who argued the area was critical habitat for wildlife, including a threatened bird. (3/4)
Alaska’s dream of building a massive liquefied natural gas (LNG) export terminal could be coming to an end. For years, former Alaska Gov. Bill Walker pushed the massive $44 billion capex intensive project as a way to offset decades of dwindling oil production in the country’s largest state. To date, some $260 million has been spent by the AGDC on the Alaska LNG project. New governor Michael Dunleavy, who took office in December, is taking a different approach. (3/6)
Alaska Gas Line Development Corp said on Wednesday it received the last major federal permit needed before it can decide on its proposed $10 billion Alaska Stand Alone Pipeline to supply natural gas to in-state consumers. (3/7)
The first US floating liquefied natural gas (LNG) project continues to plan future steps in its progress despite the U.S.-China trade war, a top manager at one of the project’s partners told Reuters on Thursday. The first US floating LNG project, Delfin LNG, is planned to be located nearly 50 miles off the Louisiana coast in the US Gulf of Mexico. (3/8)
EV supercharging: Tesla announced that it is introducing V3 Supercharging, which will support peak rates of up to 250 kW per car. V3 represents a new architecture for Supercharging. A new 1MW power cabinet with a similar design to Tesla utility-scale products supports the peak rates of up to 250kW per car. At this rate, a Model 3 Long Range operating at peak efficiency can recover up to 75 miles of charge in 5 minutes. (3/8)
VW and EVs: One of the world’s largest carmakers, Germany’s Volkswagen AG, is betting big on electric vehicles and e-mobility with a war chest of around US$50 billion to challenge Tesla, which, for the time being seems unfazed by the increasingly crowded EV market. (3/7)
UK wind: The UK has announced a new target to source a third of its electricity from offshore wind by 2030 but faces criticism for not setting more ambitious goals to reduce carbon emissions. The agreement is the first sector deal for renewable energy and follows a period of rapid growth of wind power, which accounted for 17 per cent of the country’s electricity generation last year. (3/7)
Germany’s RE: Combined wind and solar generation in Germany is forecast to reach a record high this week after Monday’s total narrowly missed the country’s daily all-time high. Wind power covered 64 percent of German power demand on Monday and has been Germany’s single biggest source of electricity year to date. The surge in renewables is expected to push average German weekly spot power prices down to levels seen last spring. Widening the view, across Europe wind power covered 24 percent of electricity demand Monday. (3/6)
Efficiency backsliding: LED light bulbs are already on the shelf, work great, last longer, use one-sixth of the power of an incandescent bulb, and are gaining sales dramatically. Efficiency advocates worry that the Trump administration could slow the pace of this lighting revolution by pushing back some supportive rules established during the Obama administration. (3/9)
Greenland’s 660,000-square mile ice sheet contains enough fresh water to flood coastal cities around the world. Warm air over the sheet is causing it to melt, but new work reveals that rainfall is also causing more melting than previously thought. (3/9)
BP climate strategy: BP said that it would support a call from a group of institutional investors to expand its carbon emissions reporting and to describe how BP’s strategy is consistent with the goals of the Paris Agreement in yet another pledge by Big Oil to start taking investor demands on climate action seriously. (3/6)
Peak Oil Review 4 March 2019
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2019-03-04/peak-oil-review-4-march-2019/
Quote of the Week
“The once-powerful partnership between fracking companies and Wall Street is fraying as the industry struggles to attract investors after nearly a decade of losing money. Frequent infusions of Wall Street capital have sustained the US shale boom. But that largess is running out. New bond and equity deals have dwindled to the lowest level since 2007. Companies raised about $22 billion from equity and debt financing in 2018, less than half the total in 2016 and almost one-third of what they raised in 2012.
Bradley Olson and Rebecca Elliott, Wall Street Journal, 2/24/19
Graphics of the Week
From Ron Patterson’s web site Peak Oil Barrel
1. Oil and the Global Economy
The struggle between lower crude output and the prospects for a global economic setback that could reduce the demand for oil continued last week. Prices rose on bullish news early in the week and then fell to close only slightly higher for the week at $55.80 in New York and $65.07 in London. Most analysts are predicting that oil prices will continue to rise as the case for lower production later this year seems stronger than the case for lower demand.
For some time now analysts have been noting that for the last few years, global oil production outside of the US has been generally stagnant. (Note the trailing average in the graphic above) While oil prices have varied during this period, they have not spiked due to the spectacular increase in US shale oil production. In recent years the demand for oil has been increasing at about 1.5 million b/d each year which has been satisfied by US production. Unless there is a global economic recession or a substantial increase in oil prices, demand for oil seems destined to continue increasing for the foreseeable future despite growing concerns about carbon emissions.
Currently, there is no evidence that a spectacular jump in global oil production is in the offing and new oil discoveries remain well below the world’s annual oil consumption of some 36 billion barrels per year.
Leaving aside the concerns about carbon emissions, the heart of the global oil availability issue in the immediate future seems to center on whether US shale oil production can keep growing. The government and the oil industry say that it can; qualified outside observers say it is highly unlikely that it will. We are likely to be entering a period of considerable uncertainty and volatility of oil prices.
The OPEC Production Cut: The cartel’s production fell to 30.68 million b/d in February, a four-year low, as Saudi Arabia and its Gulf allies over-delivered on the group’s supply agreement while Venezuelan output continued to decline, and 300,000 b/d remain offline in Libya. The drop came despite criticism from President Trump, who on Monday tweeted a call for the group to ease its efforts to boost prices, saying they were “getting too high.” These figures are from a Reuters survey as OPEC will not release its official data for February production until March 14th.
The most significant drop in supply came from Saudi Arabia, which pumped 130,000 b/d less than in January. Saudi supplies had hit a record 11 million b/d in November after Trump demanded more oil be pumped to curb rising prices and make up for losses from Iran. OPEC and the kingdom then changed course as prices slid on the prospect of oversupply in 2019.
The Saudis have already signaled that they plan to cut production further to around 9.8 million b/d in March, some 500,000 b/d below its commitment in the OPEC+ deal. Energy Minister al-Falih said last month that Saudi Arabia also would be cutting its crude oil exports to near 6.9 million b/d this month, down from 8.2 million just three months ago.
Al-Falih’s comments suggest that OPEC will not back down in the face of pressure from Washington. The standoff with the Saudis is coming at a time when the US Congress is pushing forward on the “NOPEC” legislation, which would open up OPEC members to antitrust regulation by the US Justice Department. A confluence of events has come together in favor of the bill, including a President who used to beat up on OPEC.
However, US Energy Secretary Perry said Thursday that anti-OPEC legislation under consideration in Congress could lead to an oil price spike by preventing the world’s producers from managing supply. Perry essentially defended OPEC’s role of balancing oil supplies and delivered a critique of the proposed bill for which President Trump has repeatedly expressed support, although not since taking office.
US Shale Oil Production: America’s crude oil production will keep setting annual records until 2027 and will remain higher than 14 million b/d through 2040, thanks to continuously growing shale production, according to the EIA’s Annual Energy Outlook 2019. This projection is very optimistic and does not square with what outside observers are saying about the long-term prospects for shale oil production.
US crude production edged lower in December to 11.85 million b/d, posting its first official decline since May, according to the EIA’s monthly report issued on Thursday. Production fell 56,000 b/d from a record 11.91 million in November. While output rose by 53,000 b/d in Texas and North Dakota, the gains were offset by a production decline of 125,000 b/d in the Gulf of Mexico. Production numbers from the EIA’s monthly report,which are delayed by two months, are considered to be more accurate than the EIA’s weekly estimates.
The EIA’s weekly production estimates, however, continue to express optimism with the latest release saying that US crude oil production rose 100,000 b/d the week before last to a record 12.1 million b/d. This forecast comes despite a harsh winter in North Dakota’s Bakken oilfield which is likely to see a decline in production during the winter due to the extreme cold. Some analysts are saying that while total US shale oil production is still snowballing, it could well flatten out by mid-year.
The US oil rig count has been dropping of late due to decisions made several months ago. The US rig count is already in decline. Total oil rigs are stood at 853 for the week ending on February 22, down from a peak of 888 in November. In particular, the Permian –on which most of the hope for the shale oil industry rests – has seen the rig count decline to a nine-month low.
Moreover, the industry is awash in stories of cutbacks in capital spending due to the need to show bankers and investors a real profit rather than just deficit-financed production gains. Several firms, however, are saying that they will be able to increase production despite less capital spending this year due to “efficiencies.” Some observers are skeptical, as most of the technical “efficiencies” gained from longer laterals and the use of more fracking sand have already been realized. One “efficiency” that seems to be real is the squeezing of the oil service companies by drillers.
One unknown in the future of shale oil production is the increasing share of output that is coming from the major oil companies, particularly in the Permian Basin.
Companies such as Exxon and Chevron do not need to make a profit on every well drilled and can finance their drilling from the profits of conventional production. These companies can profit from the scale of their operations, refining, transporting, and marketing any shale oil they produce and are not dependent on selling crude at market rates. Chevron, which increased its Permian production to 377,000 b/d in the fourth quarter, is expressing much optimism about the future of shale oil and says it will be profitable in 2020 – implying that it will lose money this year.
A recent study found that a group of 32 mid-sized drillers spent nearly $1 billion more on drilling and related capital expenditures during the third quarter of 2018 than they generated in sales. This is notable because selling prices were higher last summer than currently. As few small and mid-sized drillers have ever made any money from drilling operations, it will be interesting to see how the large oil companies do in the next few years. The future of global oil production may hang on this question for if the shale oil boom fizzles from the lack of profitability, global oil production may peak soon thereafter.
2. The Middle East & North Africa
Iran: Asia’s crude oil imports from Iran slipped in January to the lowest in two months after China and India slowed purchases and as Japan recorded zero imports for a third month. However, in February, Japanese buyers were back in the market to buy as much Iranian crude as they can before the US sanction waivers close in May. Cosmo Oil has ordered a cargo of 900,000 barrels of Iranian heavy crude for March delivery and this will likely be the last cargo of Iranian crude to be shipped to Japan. Asia’s top four buyers of Iranian oil – China, India, Japan, and South Korea – imported a total 710,699 b/d of Iranian crude in January, 49 percent lower than the same month in 2018.
Two days after saying he intended to step down, Iran’s foreign minister, Mohammad Zarif, returned to his post after President Rouhani rejected the resignation. Zarif has been Iran’s public face and brokered the deal curtailing Iran’s nuclear program. After President Trump withdrew from the nuclear deal last year Zarif lost standing with Iran’s leadership, and he was relegated to the sidelines. Given his good relationship with most of the world’s leaders, the government likely realizes that they may need his skills to help negotiate the hard times ahead.
Iraq: Last week the Kurds resumed trading crude and fuels across the border with Iran. This trade was halted at Washington’s request as part of the sanctions on Iran. After receiving a new order from the KRG Ministry of Natural Resources on Feb. 20, border officials at the three main crossing points between Iraqi Kurdistan and Iran began letting tanker trucks through.
The Bashiqa exploration block – which straddles the line between the autonomous Kurdistan region and the rest of Iraq –is fraught with political and geological problems. ExxonMobil sold half of its stake in the project in 2017, and now, Norway’s DNO has taken over as operator, under a contract with the Kurds. This action will likely set off another round of problems with Baghdad.
Saudi Arabia: Energy Minister Khalid al-Falih said on Wednesday that he was leaning toward an extension of the OPEC+ production cuts after June, although he noted that the producer group would take a measured approach not to tighten the oil market too much. President Trump tweeted last Monday his latest criticism of OPEC’s cuts aimed at rebalancing the market and lifting prices. The tweet sent oil prices tumbling by more than 2 percent on Monday, but a surprise draw in crude oil inventory of 4.2 million barrels as reported by the API lifted prices again.
Saudi Arabia’s crude oil exports to the US are falling sharply, with shipments in February at just 1.6 million barrels versus 5.75 million barrels a year ago. For January, Saudi Arabia exported just 2.69 million barrels of crude to the United States. The decline follows Saudi Arabia’s decision to cut its crude oil production—primarily heavy grades of oil —by more than it agreed to at the December OPEC+ meeting as it seeks higher oil prices.
Aramco aims to export as much as 3 billion cubic feet of gas per day by 2030, Amin Nasser, the company’s CEO, said on Tuesday. Aramco will solely develop the kingdom’s conventional and unconventional gas reserves and will control exports via pipelines and LNG tankers.
Last week, in a speech at the International Petroleum Week in London, Nasser rebuked all those who predict the demise of the oil industry in the near future, saying that those claiming that the world will soon run on anything but oil “are not based on logic and facts, and are formed mostly in response to pressure and hype.” “While most forecasts see peak oil demand at some point in the 2030s, the oil industry still sees itself as being relevant for decades to come.”
Libya: Workers at Libya’s El Sharara oilfield are ready to resume production with an initial output of 80,000 b/d but are still waiting for approval from the state oil firm, a field engineer and trader said on Wednesday. “There is no technical obstacle to the restart of production. The issue is security,” a NOC spokesman said.
At least 19 people were killed during the fighting in southern Libya, according to a member of parliament, as forces loyal to strongman Khalifa Haftar fought for control of oilfields in the region. Haftar’s Libyan National Army (LNA) killed civilians, including children, and set fire to more than 30 houses in the southern city of Murzuq. The member of parliament from the region claims that farms were also destroyed, and more than 100 cars were stolen. The battle for Murzuq, a city 900km south of the Libyan capital, Tripoli, was the first battle for a city fought by the LNA since it started a campaign to take control of oilfields in the south a month ago.
If these claims of extensive fighting are true, it would explain why it is taking so long to resume production from the 300,000 b/d oilfield. Libya’s state-run National Oil Corp announced last week that its chairman, Mustafa Sanalla, traveled to the United Arab Emirates to meet with a number of Libyan and international parties to discuss the Sharara oilfield crisis.
3. China
The Xinhua news agency reports that China has found “massive” shale oil reserves in the northern Tianjin municipality. Two wells at a field have been flowing for more than 260 days, according to Dagang Oilfield, a subsidiary of state-owned China National Petroleum Corporation (CNPC). According to the state company, the newly found shale reserves will help boost China’s national energy security and economic development. As part of a government push to expand domestic energy supply, CNPC and Sinopec are raising investments to increase local oil and gas production and are increasing drilling at tight oil and gas formations in western China. The Chinese have been looking for shale oil and gas fields similar to those that have revolutionized US oil and gas production for the last ten years – with little success. After years of exploring for commercial tight oil deposits, it seems doubtful that any on the scale found in the US or possibly Argentina will be found in China.
China’s leader, Xi Jinping recently told a national gathering of senior party officials that the country faces significant risks on all fronts. Whether dealing with foreign policy, trade, unemployment, or property prices, he declared, officials would be held responsible if they slipped up and let dangers spiral into real threats. The speech, which was one of Mr. Xi’s starkest warnings since he came to power in 2012, underscores how slowing growth and China’s grinding trade fight with the United States have magnified the party leadership’s deep-seated fears of social unrest.
China imported 9.8 million tons of natural gas in January, up 6.2 percent from December, and 26.8 percent year on year, according to the General Administration of Customs. China imported 6.58 million tons of LNG in January, up 4.6% month on month, and increased 27.8 percent year on year, and 3.23 million tons of natural gas via pipeline in January, up 9.7 percent month on month and 24.8 percent year on year. Australia was the biggest supplier of natural gas to China in January at 2.34 million tons, followed by Turkmenistan at 2.25 million tons and Qatar at 1.40 million tons.
China is about to announce the creation of a state-held oil and gas pipeline company combining the assets of national firms. Such a firm would allow energy companies to focus on boosting exploration and production rather than worrying about distribution. China’s National Development and Reform Commission —the economic planning body—has already approved the plan, while the State Council has yet to issue final approval. A national pipeline firm would be the most significant energy ‘reform’ in China since 1998 when the country restructured its oil and gas sector.
China’s coal consumption rose for the second year in a row in 2018, but coal’s share of total energy consumption fell below 60 percent for the first time as cleaner energy sources gained ground. The world’s biggest coal consumer used 1 percent more coal in absolute terms last year than in 2017, China’s National Bureau of Statistics said in an annual communique. Coal consumption had risen for the first time in four years in 2017. This increase is not good news for efforts to control carbon emissions which all projections show rising in future years despite the UN agreements to cut carbon emissions.
An oil tanker carrying US crude oil is offloading its cargo at a Chinese port on Friday, marking China’s first import from the United States since late November, according to trade sources and Refinitiv data. Trade tensions between the United States and China cut US oil exports to Asia to a trickle in the second half of last year. No US crude volumes were recorded going into China during October, December, and January, according to China customs. President Trump asked China in a tweet on Friday to lift all of its tariffs on American agricultural products, pointing to his decision to delay the second round of tariffs and to improving trade relations with China.
4. Russia
Russian oil output was 11.34 million b/d in February, down some 75,000 from the October level, its baseline for the OPEC+ production cut. This production level was down from 11.38 million bpd in January. All the Russian majors reduced their output. Russia’s largest oil producer Rosneft and No.2 Russian oil company, Lukoil, cut their output by 0.6 percent and 0.5 percent month-on-month, respectively. Production at Gazprom Neft, the oil arm of gas giant Gazprom, was down by 1.9 percent.
Russia’s energy ministry met with domestic oil companies on March 1 to discuss the deal between OPEC and other leading global oil producers to reduce production. A Gulf OPEC source said that OPEC and its allies would stick with their agreement to cut oil supply, pushing for more adherence despite a demand by US President Donald Trump that the producer group eases its efforts to boost crude prices.
5. Nigeria
Nigerian President Muhammadu Buhari won a second term as the chief executive of Africa’s largest economy and top oil producer. However, the former general now faces a dizzying array of challenges including a divided population, moribund economy and a rejuvenated Islamist insurgency. Nigeria’s electoral commission reported that Buhari beat his opponent, Atiku Abubakar by a margin of four million votes, 15.2 million vs. 11.3 million, in an election marred by delays, ballot manipulations, and violence that left 39 people dead. However, no independent observer has reported electoral fraud. Turnout was a record low at just 35.6 percent. Atiku Abubakar criticized what he called a “sham election” and has vowed to go to court.
In an effort to help out its fiscal situation in a time of low oil prices, Nigeria is seeking nearly $20 billion from international oil majors in back taxes. The government has asked Shell, Chevron, ExxonMobil, Total, Eni, and Equinor to pay from $2 billion to $5 billion each. So far Shell has said that the country’s tax claims lacked merit and could see the Final Investment Decision on Bonga South West 200,000 b/d oil project slip into 2020 from 2019 while the claim is disputed. Underpayment of taxes and theft of oil through accounting fraud by the international oil companies is a frequent theme in Nigerian political discourse.
For example, a recent report claims that Nigeria’s oil and gas sector is responsible for 92.9 percent of illicit financial flows out of the country of over $217.7 billion between 1970 and 2008. Illegal money sometimes flows into Nigeria. Shell is facing prosecution from the Dutch authorities over its acquisition of an offshore oil and gas block in Nigeria a few years ago. The Anglo-Dutch firm is already a defendant in a trial for the same deal in Italy. The 2011 acquisition of block OPL 245 in Nigeria by Shell and Eni, according to Italian and Nigerian prosecutors, involved a transfer of money to personal accounts held by the Nigerian oil minister at the time. The official, Dan Etete, was later convicted of money laundering by a French court in a separate, unrelated case.
Nigeria does not seem to be taking its OPEC production cut pledge very seriously. The national oil company announced last week that production from the recently started Egina deepwater field would remain outside Nigeria’s commitment to OPEC’s production cuts. Nigeria, which currently produces around 1.8 million b/d of crude oil and another 400,000 b/d of condensate, is due to cut by about 40,000 b/d at the same time it is increasing production from its new 200,000 b/d field. It seems as if the only way Nigeria will be adhering to its share of the production cut will come if the Nigeria Delta Avengers stick to their pledge to start blowing up oil facilities in the Delta.
There may be yet another gasoline shortage soon. The National Petroleum Corporation says that Nigerians consume an average of 333,000 b/d of gasoline daily. Only one tanker carrying gasoline is due into Nigeria in the next two weeks.
6. Venezuela
It was relatively peaceful in Venezuela last week as the fighting over allowing food supplies building up at the borders is on hold. Moscow announced that it is helping Venezuela with shipments of wheat as the government is not letting other humanitarian aid into the country. The United States announced new sanctions against Venezuelan government officials last week as tensions in the country continue to escalate. The latest sanctions, against four governors close to President Nicolas Maduro, came after clashes at the border prevented humanitarian aid from entering Venezuela. Vice President Mike Pence had called on the Lima Group—a group of governments trying to resolve the Venezuelan crisis peacefully—to increase pressure on the Maduro government by seizing PDVSA assets as well as other government-owned assets of Venezuela and transfer the ownership to Juan Guaido’s interim government from the Venezuelan opposition.
Citgo is formally cutting ties with its parent company PDVSA, to avoid running afoul of US sanctions on PDVSA and to keep Citgo’s refineries and pipeline systems in operation.
Venezuela has shifted some of its crude exports from American refiners to India and Europe, according to the country’s oil minister and ship-tracking firms. However, it will difficult for the Maduro government to generate a profit from these sales. Since late January, the regime’s oil exports have come under US restrictions aimed at redirecting crude revenue to opposition leader Juan Guaidó, whom the US recognizes as the country’s legitimate president. China’s crude imports from Venezuela surged 50.7 percent month on month to 411,000 b/d in January, posting the fifth month in a row of increases after hitting a four-year low last September. In the past, shipments to China did not generate any revenue as they were going to pay off past loans. It is likely that China is suspending loan payoff as without some revenue from this oil Caracas would have little with which to pay for food imports.
7. Mexico
State oil company Pemex said last week that its losses narrowed in 2018, helped by currency exchange gains as crude production and refining rates continued to decline. Mexico’s largest company still reported a loss of $7.6 billion in 2018, down by nearly half from losses of about $14.3 billion the previous year, according to a filing with the Mexican stock exchange. The company posted a $6.4 billion loss in the fourth quarter and is facing mounting scrutiny from investors after its credit rating was cut by Fitch Ratings in late January to one notch above junk status.
Mexico’s central bank on Wednesday cut its economic growth forecasts for this year and next, pointing to the risk of rating downgrades to the country and state-run oil firm Pemex. In a quarterly report, the bank lowered its Mexican growth forecast to between 1.1 percent and 2.1 percent for 2019 and between 1.7 percent and 2.7 percent for 2020, echoing increasing skepticism among private-sector economists on the outlook.
Auctions scheduled later this year to pick joint venture partners for Pemex will proceed, an official at the national oil regulator said on Thursday, despite the president’s apparent cancellation of the tie-ups.
The equivalent of 1,145 truckloads of oil is stolen in Mexico per day from Pemex. That’s $7.4 billion in lost revenue since 2016 – a significant hit for a country where 3.8 percent of GDP comes from oil exports.
8. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
BP on US oil market: The US shale industry responds only to oil price signals and is like “a market without a brain,” BP’s chief executive Bob Dudley said on Tuesday. He stated that unlike Saudi Arabia and Russia, which adjust their output in response to gluts or shortages in oil supplies, the US shale market responds purely to oil prices. (2/27)
Global oil and gas companies are increasingly facing an uphill battle as global warming policies are taking their toll. Most analysts and market watchers are focusing on peak oil demand scenarios, but the reality could be much darker. International oil companies are likely to face a Black Swan scenario, which could end up being a boon for state-owned oil companies. Increased shareholder activism, combined with global warming policies of institutional investors and NGOs, are pushing IOCs in a corner, constricting financing options for oil companies. (2/25)
Exxon’s climate pushback: Exxon is trying to block an investor initiative seeking to force the supermajor to commit to a reduction in harmful emissions, especially carbon emissions. Exxon calls the investor initiative misleading and saying it was trying to “micro-manage” the business. The investors are the endowment fund of the Church of England and the New York State pension fund. (2/26)
Global liquefied natural gas trade will rise 11 percent to 354 million tons this year as new facilities increase supplies to Europe and Asia, Royal Dutch Shell said in an annual LNG report on Monday. Shell, the largest buyer and seller of LNG in the world, said trade rose by 27 million tons last year, with Chinese demand growth accounting for 16 million tons of those volumes. (2/25)
Offshore Cyprus, ExxonMobil added another giant gas discovery to the east Mediterranean region after finding a gas-bearing reservoir, but infrastructure bottlenecks and geopolitical disputes mean output from the field could be far off. (3/1)
Indian refiners processed 21.94 million mt, or an average 5.2 million b/d, of crude oil in January, down 3.6% year on year. (2/27)
Thailand’s natural gas depletion problems are causing the southeast Asian country to make significant changes to its energy mix. The capacity of non-hydro renewables in Thailand—mostly driven by the biomass and solar sectors—may expand to 21 percent of the country‘s total power capacity mix at 14,858 MW by 2028. (2/27)
In Mozambique, militants have attacked Anadarko’s LNG project in what is the first attack on the oil and gas industry in the African country. More than a dozen masked, armed men—suspected to be members of an Islamic militant group—attacked a convoy near the project, which is still under construction, and injured four people. (2/26)
In Nigeria, Shell is facing prosecution from the Dutch authorities over its acquisition of an offshore oil and gas block a few years ago. (3/2)
The US oil rig count declined by 10 to 843 while the number of active gas rigs grew by 1 to 185, according to GE’s Baker Hughes. The oil and gas rig count is now 57 up from this time last year, 43 of which is in oil rigs. (3/2)
Heavy crude okay: A tight market for heavy sour crude, exacerbated by US sanctions on Venezuela, has yet to negatively impact operations at Saudi Aramco’s Port Arthur refinery on the Gulf Coast. The 630,000 b/d Port Arthur facility in Texas, operated by Aramco subsidiary Motiva, is the US’ largest refinery. (3/1)
Exxon Mobil Corp said it added 4.5 billion oil-equivalent barrels of proved oil and gas reserves in 2018, driven mainly by increases in its holdings in the US Permian Basin, Guyana, and Brazil. The oil major said its proved reserves totaled 24.3 billion oil-equivalent barrels at the end of 2018, with liquids accounting for 64 percent, up from 57 percent in 2017. (3/1)
Digital oilfield: In the post-2014 world, digital technology and Big Oil have teamed up to bring in the era of the digital oilfield, which just a couple of decades ago must have sounded like science fiction. Earlier this month, Schlumberger announced it had struck a partnership with Rockwell Automation, a company specializing in automation solutions for industrial applications. (2/28)
SPR sale: The US Energy Department said it is offering up to six million barrels of sweet crude oil from the national emergency reserve in a sale mandated by a previous law to raise funds to modernize the facility. (3/1)
Three new natural gas-to-methanol plants are expected to start up in the US in 2019 and 2020—two in the Gulf Coast and one in West Virginia. The higher methanol production capacity will boost the US production of the fuel which can be used as an alternative transportation fuel or blended into gasoline to increase engine efficiency and cut air pollution; the higher capacity will also increase the industrial use of natural gas. (2/26)
WV pipeline moving forward: TransCanada said on Friday that the US Federal Energy Regulatory Commission approved the full in-service of the Mountaineer XPress natural gas pipeline project, which will help link the Appalachian basin’s natural gas supplies and growing markets in the US and beyond. The Mountaineer XPress project includes a 170-mile natural gas pipeline in West Virginia that will increase natural gas capacity by 2.7 billion cubic feet per day and together with related infrastructure—new compressor stations and modifications to existing compressor stations—represents a total investment of US$3.2 billion. (3/2)
Alaska gas pipeline plan fading: The new CEO of Alaska’s state gas corporation told legislators Thursday he is prepared to shut down the project and return unused funds to the state treasury if customers or investors do not appear in the next few months. (3/1)
Electricity evolution is slow: A study conducted by a team led by Robert Gross of Imperial College London and published in December 2018, concluded that, on average, the adoption time of the last four major power-generation technologies was 43 years. And by the end of that time, these technologies were well established, but not yet in a dominant position. (2/28)
The contribution of nuclear power to the global power mix in mature markets is set for a significant decline under current policy frameworks, as there are limited investments in new plant construction, the IEA said. China and India are responsible for more than 90 percent of net growth to 2040. However, outside of Japan, nuclear power generation in mature economies is seen dropping by 20 percent by 2040. (2/28)
Global EV growth: In 2018, 4.28 million BEVs, PHEVs, and HEVs were sold globally—an increase of 28.6% over the year prior—amounting to 5.2% of total global passenger vehicle sales, according to Adamas Intelligence. Not only is the EV market growing rapidly, the modern EV itself is also undergoing rapid technological evolution, from model to battery pack to cell and cell chemistry, Adamas says. (2/26)
The EV battery race intensified this week with the announcement that a startup financially supported by the US Department of Energy had released a lithium-ion battery that stores more energy than the 250 Wh EV industry benchmark. The company, 24M, said its semi-solid-state nickel-manganese-cobalt battery had achieved an energy density of 280 Wh and that its approach to battery building would allow it to hit a target of 350 Wh by the end of the year. (3/1)
Record cold: Temperatures as much as 30 to 50 degrees below normal are entering the Northern Plains as we close out the workweek. Through the weekend, brutal conditions you might expect in a frigid January overtake the central portion of the country, from the Mexican to the Canadian borders. Heading into the first full week of March, Arctic air takes up residence in the East as well. When it’s all done, most of the contiguous US will endure a punishing blow of frigid air from this Arctic blast. Records for cold are likely. (3/2)
Peak Oil Review 25 February 2019
By Tom Whipple, originally published by Peak-Oil.org
https://www.resilience.org/stories/2019-02-25/peak-oil-review-25-february-2019/
Quote of the Week
“While Exxon invested $12.5 billion on international upstream capital expenditures (CAPEX) to produce 1.7 million barrels a day of total liquid oil production in 2018, it spent a staggering $7.7 billion in US upstream CAPEX to supply only 551,000 b/d of oil. Thus, Exxon spent nearly double the amount of CAPEX for each barrel of US oil production versus its international oil supply… ExxonMobil’s US oil and gas sector is heading toward a financial disaster. It’s US oil and gas CAPEX spending will choke the living hell out of its profits. While some may think I am fermenting hype, the financial results shown above point to a pretty clear trend… and it ain’t good. If one of the world’s largest oil companies can’t make money producing US shale, then what does that say for the rest of the industry?” Steve St. Angelo, independent precious metals and energy researcher
Graphic of the Week
1. Oil and the Global Economy
Brent crude futures briefly touched $67.73 a barrel on Friday, their 2019 high. The London contract then fell 5 cents to settle at $67.12 a barrel while US futures US gained 30 cents to settle at $57.26 per barrel, after hitting $57.81 earlier in the day. Despite forecasts that US shale oil production will continue to increase rapidly next month, supply disruptions in Venezuela and Libya, the 1.8 million-barrel OPEC+ production cut, and hopes that the US-China trade dispute may be settled soon, were enough to push prices higher last week. Prices have now gained about $5 a barrel since mid-February but are still some $20 a barrel below the recent highs set last October.
Fears of a global economic slowdown appear to have waned for the minute in hopes that a settlement of the US-China trade dispute will result in a period of faster global economic growth. While European oil consumption has been flat a long time, demand has declined year-on-year in the past few months, which suggests a slowdown is underway in the European economy. While China seems to be settling into a planned growth of around 6.5 percent, many observers note that in China, economic growth, and the statistics to back it up, is more a political target than a reflection of the actual state of the economy. For years, Chinese officials at all levels of government cooked statistics to meet those political objectives. For now, China’s economy seems to be perking along, but many are warning of problems ahead.
The OPEC+ Production Cut: The monitoring committee for the OPEC+ supply reduction deal on Wednesday found compliance with the cuts at 83 percent. Just what they are measuring remains to be seen. Libyan production is down about 300,000 b/d due to unrest at its largest oilfield, and Venezuelan production is likely down hundreds of thousands of barrels a day due to the US sanctions. While Caracas’ production is likely to fall in the foreseeable future, Libyan could pop back to around 1 million b/d at any time.
The Saudis are undertaking the bulk of the production cut on behalf of OPEC and have pledged to cut production further in March. In contrast to the Saudis, Moscow is saying it is impossible to reduce output during the frigid Russian winter months and that they will be in full compliance with their pledge by May.
The lack of enthusiasm for the cuts, coupled with reports that a major Russian oil firm is saying that the cuts are unnecessary, is raising questions as to whether the alliance between the Saudis and Moscow will hold. Reports that the relationship will be formalized by a treaty are being denied in Moscow as unnecessary. A complete collapse of the Venezuelan oil industry would produce much the same results as the OECP+ production freeze.
According to President Muhammadu Buhari, Nigeria could start reducing its crude oil production in line with the output cut. This time the country was not exempted from the cuts and was assigned a reduction of about 40,000 b/d. However, instead of reducing its production, Nigeria boosted it with the start of production at the giant Egina offshore field, operated by French Total.
US Shale Oil Production: The EIA’s February Drilling Productivity Report, which was released last week, has spawned a raft of analysis and commentary as to just where US shale oil production is headed and at what costs. The EIA expects US shale production will grow by 84,000 b/d in March 2019. The gains are forecast to be led by the Permian (+43,000 b/d), followed by smaller contributions from the Niobrara (+16,000 b/d), the Bakken (+13,000 b/d), the Eagle Ford (+9,000 b/d) and Appalachia (+3,000 b/d).
There are some interesting numbers showing up in the EIA’s Drilling Productivity Report. The report says that new-well production by rig is around 1,400 b/d in the older Bakken and Eagle Ford shale oil deposits, while only about 600 b/d in the Permian shale oil deposits. This discrepancy seems to imply that it takes more than twice as many wells in the Permian to end up with the same amount of oil at the end of the first month. The large difference in initial productivity needs some explanation if we are to accept that the Permian Basin is to drive the US increase in oil production in the coming years.
While still impressive, the growth of US shale oil production is slowing. EIA forecasts US crude oil production will average 12.4 million b/d in 2019 and 13.2 million b/d in 2020, with most of the growth coming from the Permian region of Texas and New Mexico. The EIA currently projects February Permian growth at 23,000 b/d and March at 43,000 b/d. By contrast, a year ago, EIA forecasted February 2018 basin growth at 76,000 b/d and March 2018 increase at 75,000 b/d, so there is quite a decline in expectations.
Expenditures in the shale oil industry are starting to contract as investors put increased pressure on drillers to make money and not just increase money-losing production. The rig count for February fell by nine. That was the first-time drillers removed rigs for three months in a row since October 2017. The rig count declined by two in December and 23 in January. Financial services firm Cowen & Co said last week that early indications from the exploration and production companies it tracks point to a 6 percent decline in capital expenditures for drilling and completions in 2019.
Whether the industry will live up to the EIA’s projections remains to be seen. Many firms are saying they will be producing more oil this year with fewer resources. Frigid weather in the Bakken this winter is likely to slow production considerably.
The problem of moving the associated natural gas from the Permian to market may become a limiting factor in the next year to two. The startup of Plains All American Pipeline’s 350,000 b/d Sunrise expansion at the end of 2018 marked the start of a period that should bring higher prices and more takeaway capacity for Permian crude and problems of what to do with the associated gas. According to Platts Analytics, about 3 million b/d is expected online in the next 18 months, bringing total takeaway capacity from the Permian to market to approximately 6 million b/d by 2020.
According to Platts Analytics, Permian gas production becomes fully constrained around 9.4 billion cf/d, considering that effective takeaway capacity on pipelines exiting the basin is about 8.7 billion cf/d, with local demand capable of absorbing another 700 million cf/d. Until Kinder Morgan’s 2 billion cf/d Gulf Coast Express expansion comes online in October, price volatility is likely to increase as the available capacity for production growth remains limited.
2. The Middle East & North Africa
Iran: Iranian crude exports in January were higher than expected, while February shipments may be even higher. According to tanker-tracking data from Refinitiv Eikon, Iran’s exports in February have averaged 1.25 million b/d so far, while the January exports were between 1.1 million b/d and 1.3 million b/d. These are considerably higher than the 1-million-b/d level, which was seen in December. Higher Iranian shipments would weigh on oil prices and work against the effort to cut supply in 2019 led by the OPEC+ alliance. Much of the recent increase may be due to the US waivers to the most important of Iran’s customers. These waivers are due to expire at the end of March.
Oil Minister Bijan Zangeneh said last week that Iran had completed the third phase of the new Persian Gulf Star Refinery, making the country self-sufficient in gasoline production. Tehran has been importing gasoline for its domestic needs for years. Under the previous Western sanctions, Tehran couldn’t buy spare parts for refinery maintenance, and had reduced gasoline production capacity in the wake of the Iran/Iraq war. Most of Iran’s fuel imports have been coming from refiners in India, Southeast Asia, and North Asia. According to the minister, Tehran could export some of the gasoline, but it will not do so as it wants to boost its domestic stockpiles.
Tehran is holding its annual naval drill in the Strait of Hormuz. The three-day exercise with maneuvers extending as far as the Sea of Oman and the Indian Ocean began last Friday with warships, submarines, helicopters, and surveillance aircraft taking part.
Iraq: Negotiations between Kurdistan’s two leading political parties have broken down in their efforts to form a new government in Erbil and elect a new governor of Kirkuk. The setback further extends a period of political uncertainty and lame-duck administration of the semi-autonomous region, although officials from both the ruling KDP and the PUK expressed hope that they can regenerate some forward momentum.
Saudi Arabia: Saudi Arabia’s crude oil exports fell by nearly 550,000 b/d to 7.687 million b/d in December, as the Kingdom started to limit supply after the US granted waivers to eight Iranian customers. Saudi oil production also dropped in December to 10.6 million b/d from an all-time high of 11.09 million b/d the month before. During November, Saudi Arabia’s crude oil exports had jumped by 534,000 b/d month on month to 8.24 million bpd—the highest level in two years as the Kingdom moved to offset supply losses from Iran with the return of the US sanctions.
Saudi Arabia’s Energy Minister Khalid al-Falih told CNBC in January that Moscow had moved “slower than I’d like. In response, Russian Energy Minister Alexander Novak said Russia was “completely fulfilling its obligations in line with earlier announced plans to gradually cut production by May this year.” However, the numbers say Russia is not shouldering its part of the new deal. The OPEC+ members agreed to cut supply by 1.2 million barrels per day.
Saudi Arabia agreed to make up for most of the cut among OPEC members and has also said it will drop its crude oil production by a further 400,000 b/d to 9.8 million in March. If that output cut is reached, it would mean that since December (one month before implementation of the deal), Saudi Arabia has become responsible for 70 percent of the total OPEC+ target.
State-owned Saudi Aramco has signed an agreement to form a joint venture with Chinese conglomerate Norinco to develop a refining and petrochemical complex in Panjin city, saying the project is worth more than $10 billion. Aramco and Norinco, along with Panjin Sincen, will form a new company called Huajin Aramco Petrochemical Co as part of a project that will include a 300,000 barrels per day refinery with a 1.5 million metric tons per annum ethylene cracker, Aramco said on Friday.
Over the weekend Saudi Arabia appointed Princess Reema bint Bandar as ambassador to the US, making her the first woman envoy in the country’s history. The kingdom seems to be trying to repair its image in the US media and Congress.
Libya: There was no news last week as to whether the 300,000 b/d Sharara oilfield has reopened after General Haftar’s Libyan National Army took control of the region two weeks ago.
3. China
After months of concerns that the global economy and oil demand would suffer from a US-China trade war, renewed hopes that an agreement could be reached buoyed optimism last week. China’s Vice Premier Liu He was in Washington last week and if progress is made these discussions might be followed by a Trump/Xi meeting in March. US officials note that there are still significant issues outstanding. In the meantime, the US has eased off the plan to impose tariffs on Chinese imports beginning on March 1st.
PetroChina achieved production rate of 733 b/d, from the Jimsar oil field in the western Xinjiang province, which suggests that shale drilling could finally have commercial potential in China, according to Morgan Stanley. China has been attempting to find commercial shale oil and gas deposits for the past ten years will little result. Much of China’s oil has been found in geology that is not conducive to forming shale oil deposits.
Saudi Crown Prince Mohammed bin Salman concluded a $10 billion deal for a refining and petrochemical complex in China on Friday while meeting Chinese President Xi Jinping. The Saudi delegation, including top executives from Saudi Aramco, arrived on Thursday on an Asia tour that has already seen the kingdom pledged to invest $20 billion in Pakistan and seek to make additional investments in India’s refining industry. Saudi Arabia signed 35 economic cooperation agreements with China worth a total of $28 billion at a joint investment forum during the visit. The Saudis are looking for or trying to buy, new friends in the wake of the Khashoggi murder which has soured relations with the US, Europe, and other countries.
4. Nigeria
The country, which now has a population of 191 million, voted for president over the weekend. Organizing for an election where 73 million are supposed to vote in an underdeveloped nation is some undertaking and the election was delayed for a week as officials got their act together. The ruling party, represented by Muhammadu Buhari, a 76-year-old former army general, whose health is not good, is likely to win as the incumbent rarely loses in Nigeria. Buhari has a reasonably good reputation in a country noted for corruption while his opponent Atiku Abubakar has a long history of involvement in crime even in the US where he has been the subject of FBI investigations.
Both candidates are from the northern part of the country and are disliked in the oil-producing south. The Delta Avengers, who did a respectable job of shutting down several hundred b/d of Nigeria’s oil production a few years back are talking about renewing attacks on the oil infrastructure if Buhari is re-elected. Whoever wins will have many problems, including the Boko Haram insurgency, which is reported to be killing more people each year than the wars in Yemen or Afghanistan.
The government is trying to develop a new source of revenue from suing international oil and financial companies that have been working in Nigeria for decades. Last week, a High Court in London granted Nigeria’s plea to allow it to proceed with the trial of JPMorgan Chase. The bank is alleged to have enabled the misappropriation of state funds totaling $875 million during the procurement of an oil drilling license.
Even more lucrative could be a new government effort to collect “back taxes” from the oil companies doing business in Nigeria, including Royal Dutch Shell, Chevron, Exxon Mobil, Eni, Total and Equinor. Each of the firms has been ordered to pay the government between $2.5 billion and $5 billion for a total of around $20 billion. Sending out tax bills is a lot easier than suppressing insurgencies to maintain oil production.
Nigeria is currently producing about 1.8 million b/d. Production has been going up recently due to the opening of a new offshore oilfield, which is a lot less vulnerable than oil coming from the Niger Delta. The country is supposed to cut 40,000 b/d as part of the OPEC+ production agreement, but so far seems to be increasing production despite occasional claims that it plans to comply with the deal.
5. Venezuela
Troops loyal to President Maduro violently drove back foreign aid convoys from Venezuela’s border on Saturday, killing at least two protesters and prompting opposition leader Juan Guaido to propose that Washington consider “all options” to oust him. Trucks carrying US food and medicine that was not torched by Venezuelan troops returned to warehouses in Colombia after opposition supporters failed to break through lines of soldiers.
The opposition had hoped Venezuelan soldiers would balk at turning back supplies desperately needed in the country, where a growing number of its 30 million people suffer from malnutrition and treatable diseases. But while some 60 members of the security forces defected on Saturday, the lines of National Guard soldiers at the frontier crossings held firm. During the confrontation, President Maduro addressed thousands of his supporters in Caracas warning that any US effort to use military force against his government would result in another Vietnam.
The state of Venezuela’s oil production is mired in confusion. Oil production in January was around 1.1 million b/d but has declined rapidly in the last three weeks. PDVSA is partnered with several international oil companies in heavy crude projects in the Orinoco, ranging from the US’ Chevron to Russia’s Rosneft and China National Petroleum Corp. Together, those joint ventures produced just over half of Venezuela’s total oil output. A decline of as much as 400,000 b/d due to the US embargo on diluent exports to PDVSA is currently underway. PDVSA oil production, in conventional assets outside the Orinoco, is likely to drop to minimal levels, if not shut down completely, as US sanctions take hold.
Some are saying that Caracas’s production could be as low as 500,000 b/d by the end of the year. If there is a total collapse of Venezuela’s economy, it could be close to zero. The withdrawal of foreign oil workers from the country would likely hasten the collapse. As Venezuelan refineries are barely working, widespread fuel shortages are emerging. Moscow and Europe continue to sell fuels to Caracas but at very high prices.
The long-term prospects for Venezuela’s oil industry are not good. Most of Venezuela’s future oil production will likely come from the Orinoco tar sands. This crude is extremely heavy and requires considerable processing and diluting with imported hydrocarbon liquids before it can be shipped. Most Orinoco operations are in partnership with foreign operators who can do little if diluents are not available in quantity.
Given the country’s current economic, political, and humanitarian state, it is doubtful that international oil companies will want to invest much money in Venezuela for a while. There are better opportunities elsewhere and given concerns about climate change and dirty oil, there may not be much of a future for Oronoco oil. Should a new anti – “socialist” government emerge in Caracas, it may not be interested in paying off the billions of dollars that Moscow and Beijing have loaned their fellow “socialist” country in recent years. Reviving the Venezuelan oil industry after the current troubles may find few friends.
6. Mexico
Pemex produced 1.62 million b/d in January, less than any month in almost three decades, the state-owned oil company said on Friday. The company’s crude output for the month was the lowest since at least 1990, when Pemex’s publicly available records begin. The company’s crude oil exports also fell in January to total 1.07 million bpd, down nearly 10 percent from 2018.
President Lopez Obrador, who took office in December and ran on a promise of strengthening the ailing company, said he will grow its output to around 2.5 million b/d by the end of his six-year term in 2024. Lopez Obrador has yet to fully outline how Pemex alone would be able to reverse the long-standing slide, but he did push through a larger budget for the company this year, in addition to a fresh capital injection from the government and a lower tax bill.
Pemex burned through $665 million at its fertilizer unit, ignored consultants and made high-risk investments with no discernible business strategy, according to a government audit of its 2017 operations. The report, published on Wednesday, offers insight into how Pemex ended up creaking under $106 billion of debt during the six-year term of former President Enrique Pena Nieto.
In addition to its oil production, Mexico is looking for ways to reduce its dependency on US natural gas imports, which currently satisfy over 50 percent of its demand. This is the highest foreign gas dependency rate in the world. That’s especially true because Mexico uses natural gas for over 60 percent of its power generation: a much higher portion than other gas import-dependent countries.
7. The Briefs(selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
2019 overview: The number of greenfield oil and gas projects to get their final investment decision could rise threefold on 2018, Norwegian energy consultancy Rystad Energy has forecast. Most of these will be offshore projects. The number, which only covers conventional oil and gas deposits, could open up production reserves to the tune of 46 billion barrels of oil and gas, including around 14 billion barrels of oil equivalent in deepwater blocks, some 20 billion barrels in shallower waters, and the rest in onshore deposits. (2/23)
BP Outlook 2019: BP forecasts that the global war on plastics will be the main factor in cutting global oil demand faster than previously expected. As such, for the first time BP’s outlook predicted a “peak” in oil use. At 13 million b/d, global petrochemical feedstock is 13% of total oil demand. This is part of a growing trend in recent years where BP continues to see “much slower” growth in new oil demand going forward. (2/23)
Decommissioning obligations in the global oil and gas industry rose to $11.7 billion last year and are projected to hold steady at an average of about $12 billion per year from 2019 through 2021, according to Rystad Energy. (2/22)
Plastics: The oil industry appears to have spent little time thinking about a change in demand for oil that could have just s large an effect as electric vehicles: the war on plastic. As businesses eliminate plastic straws and bags, and governments act to reduce disposable packaging, this will have profound implications on demand for crude oil. Plastics make up 15% of crude oil demand, far less than transportation’s over-50% share, and were expected to create major demand growth through 2040. (2/18)
Egypt’s oil and gas future looks very bright. The large-scale concessions awarded during the recent EGYPS 2019 conference in Cairo shows the appetite of IOCs, such as Shell, BP and ENI in this emerging energy hotspot. After years of a major slump, partly due to continuing payment and security issues, the Pharaohs are again back in the top league. Continuing concerns about security in Egypt’s Western Desert or the Sinai no longer seem to be a breaking point for investors. (2/18)
Offshore Somalia, Norwegian consultancy firm Spectrum Geo says that it only gathered data in Somali territory regarding Mogadishu’s oil stock in the Indian Ocean. It avoided studying the regions contested by Kenya. The information was used to market the blocks to investors in London. (2/21)
The Kenyan government has warned that it will not cede an inch of its soil in the disputed maritime border with Somalia even as it affirmed that it is committed to a peaceful resolution of the row. The Cabinet discussed and agreed on a roadmap for resolving the maritime border dispute with Somalia and measures for safeguarding Kenya’s territorial integrity, and marine resources including offshore oil and gas exploration acreage in the Indian Ocean. (2/23)
In Guyana, when ExxonMobil begins oil production next year–mining crude from its seven new deep-water wells–life may change dramatically in this small South American country. The mega deal is expected to increase Guyana’s gross domestic product from US$3.4 billion in 2016 to US$13 billion by 2025. (2/23)
Brazil is second in terms of production growth among non-OPEC nations, where several new start-ups and production ramp-ups are set to deliver the country’s highest annual oil output growth in at least two decades. (2/22)
Canada’s National Energy Board recommended approval of the government-owned Trans Mountain pipeline expansion, clearing one of the major obstacles for the project to move forward. The Trans Mountain expansion would roughly triple the capacity of the more than 60-year-old line, helping carry almost 600,000 more barrels of oil and fuels a day from Edmonton to a shipping terminal near Vancouver. (2/23)
Heavy Canadian crude prices widened to the biggest discount against New York futures this year as pipeline-operator Enbridge Inc. reported that rationing on its heavy oil lines would increase next month. Western Canadian Select, an oil sands benchmark, traded at $15 a barrel below West Texas Intermediate futures Tuesday, $1.50 wider than on Friday and the biggest discount this year. (2/21)
The US oil rig count fell by 4 to 853 and the number of gas rigs stayed at 194, according to Baker Hughes. For the month, the rig count fell by nine. That was the first-time drillers removed rigs for three months in a row since October 2017. The oil and gas rig count is now 69, up from this time last year, 54 of which is in oil rigs. (2/23)
Chevron Phillips Chemical may build a steam cracker and at least one derivative unit in far southeastern Texas. The company is evaluating whether to buy a 1,700-acre project site near Orange, Texas, as the location for a cracker, one or more derivative units, administrative buildings, utility and logistics infrastructure and other improvements necessary to operate the production facilities. The complex is estimated to cost about $5.8 billion. (2/23)
Federal fight w/ CA: The Trump administration is moving ahead with a planned rollback of vehicle fuel economy standards after breaking off talks with California, which wants to continue to follow stricter targets along with a dozen other states. The policy would increase US oil demand by 500,000 b/d, according to the EPA and Dept. of Transportation. (2/22)
The Three Mile Island nuclear power plant will be closing its door on September 30th of this year unless the state of Pennsylvania can pull it out of its financial hole, according to the Chicago-based owner Exelon Corp. The TMI plant would soon be followed by Beaver Valley nuclear power plant in western Pennsylvania and two nuclear plants in Ohio, which Ohio-based owner FirstEnergy Corp. said they will close within the next three years if Pennsylvania can’t pass a financial package to save them. (2/22)
Coal squeeze: Glencore has become the latest energy heavyweight to succumb to climate change pressure and has announced it will stop raising its coal production capacity, CNBC reports. The Swiss company’s current thermal coal production capacity is 150 million tons annually, which makes it the biggest single exporter of the commodity. Glencore plans to use the capital that will be freed thanks to the capacity cap to increase its production of basic metals such as copper, cobalt, nickel, vanadium, and zinc, all of them used in EV batteries and other technology that enables the shift to cleaner energy generation. (2/22)
India’s demand for electricity is expected to double in the next two decades, and coal has been long forecast to be the fuel of choice for power generation. But this may no longer be the case. Yes, India is still a large producer of coal. Yet the main reason coal may battle to fuel India’s future energy needs is that it’s simply becoming too expensive relative to renewable energy alternatives such as wind and solar. (2/20)
Wind power capacity additions in Europe fell in 2018 to their lowest level since 2011, according to a report Thursday from industry group WindEurope. “Europe installed 11.7 GW (10.1 GW in the EU) of gross additional wind power capacity in 2018. This is a 32% decrease compared to 2017,” it said. Growth in onshore wind capacity additions fell by over half in Germany and collapsed in the UK. (2/21)
“HES” generation: Thanks to continuously declining costs, a hybrid renewable electricity generation system that combines wind, solar, and storage could become competitive with the cheapest fossil fuel electricity in the U.S.—combined-cycle natural gas generation—according to John Deutch, an Institute Professor at MIT. Last year, renewable energy—including hydropower—provided 18 percent of total US power generation, up from 11 percent back in 2009. Wind and solar capacity has more than quadrupled since 2009—from 36.2 GW to 164.6 GW (2/21)
Big battery: Borden County, Texas, is set to become the home of the world’s largest battery storage system in 2021. IP Juno has recently outlined plans to build a 495-MW storage system together with a solar farm of the same size in Borden County, a small community in West Texas in the very heart of the most important US oil field, the Permian. The pairing will relieve ever-growing demands for electricity in the US most prolific oil field. (2/21)
Shell moves on batteries: Last week, Shell became the latest supermajor to make a big bet on battery storage with the announced acquisition of German energy storage startup Sonnen. Sonnen focuses specifically on household energy storage, a nascent market but one with a huge potential if ambitious renewable power plans by governments around the world work out. (2/19)
Wave energy 4.0? Engineers from Scotland and Italy have developed a new wave energy technology that could generate low-cost electricity. Few wave energy converters have moved past pre-commercial stage because of the high costs and the often harsh marine environment. So the team designed the so-called Dielectric Elastomer Generator (DEG) using flexible rubber membranes. The device is cheaper than conventional designs, has fewer moving parts, and uses durable materials. (2/19)
Battery tech: BMW is seeking alternative cooling technologies for vehicle batteries to further improve peak cooling capacity during fast charging while reducing cooling components’ vibration and noise emission. Faster charging creates more heat to be dissipated within a short period of time. Current technologies use electric refrigerant compressors. Rising cooling capacities would generate significantly higher vibrations through fans and other moving components, and thus more noise. (2/19)
E-plane: Bye Aerospace’s electric Sun Flyer 2 successfully completed the first official flight test with a Siemens electric propulsion motor 8 February at Centennial Airport, south of Denver, Colo. The Sun Flyer family of aircraft, including the 2-seat Sun Flyer 2 and the 4-seat Sun Flyer 4, aims to be the first FAA-certified, practical, all-electric airplanes to serve the flight training and general aviation markets. Siemens will provide electric propulsion systems for the Sun Flyer 2 airplane—the 57 lb. SP70D motor with a 90 kW peak rating (120 HP), and a continuous power setting of up to 70 kW (94 HP). The all-electric operation requires no aviation fuel and results in zero emissions and significantly lower noise pollution compared to conventional aircraft. (2/19)
Property Purchase Guide
Russians Proving That Small-Scale, Organic Gardening Can Feed the World
http://reclaimgrowsustain.com/content/russians-proving-small-scale-organic-gardening-can-feed-world